The impact of money supply and prices on economic growth in Jordan: an autoregressive distributed lag approach

Abstract EN

This study aims at investigating the impact of money supply and prices on economic growth, or in other words, the effectiveness of monetary policy in enhancing the economic growth in Jordan.

therefore, the study uses quarterly time-series data for Jordan over the period 1992Q1-2019Q4 to estimate a reduced form model.

the study variables are stationary at different levels as indicated by Phillips-Perron unit root test.

the autoregressive distributed lag model (ARDL) was applied to estimate the model.

ARDL Bounds cointegration test has clarified the existence of cointegrating relationship in the long-run.

the results have emphasized the significant positive short and long-run impact of money on the Jordanian real output, rejecting the hypothesis of neutrality of money in the long-run.

the adjustment coefficient is 64% indicating that 64% of the previous quarter deviation from long-run equilibrium is corrected in the current quarter.

granger causality test has also revealed the existence of a unidirectional causality running from money to the real output.

the study has proven that money supply can stimulate economic growth, thus it is recommended that policymakers should focus on monetary policy tools in order to raise the real output in the short and long-run, in addition to developing measures to control inflation within a threshold level to achieve a sustained economic growth.