The impact of interest rate on investment in Jordan : a co integration analysis

Abstract EN

The main aim of this study is to investigate the impact of real interest rate on investment level in Jordan over the period (1990-2005).

A co integration analysis with three variables (investment level, real interest rate, and income level) is employed.

Two unit root tests (Phillips-Perron test and Augmented Dickey- Fuller test) have been exploited to check the integration order of the variables.

The Johansen Co integration test is mainly used.

And for the purpose of supporting the results, the dynamic relationships among the variables are explained through presenting variance decomposition and impulse responses.

The results were found to be in line with the economic theory and some other studies in the sense that real interest rate has a negative impact on investment, where it is found that an increase in the real interest rate by 1% reduces the investment level by 44%.

On the other hand, the income level has a positive impact.