Impact of monetary policy on financial stability evidence from Jordan

Abstract EN

In this paper, we analyze the relationship between financial stability and monetary policy in Jordan.

We consider an impulse function using a VAR framework.

A Granger causality test employed to explore the impact of monetary policy shocks on a financial stability index.

Findings emphasize that changes in the excess reserves impact positively on the financial stability index, however, the effect is small in magnitude.

On the same direction, changes in domestic credit have a significant impact on the financial stability index.

These findings support the explanation that monetary policy has a significant effect on the financial stability through affecting its medium target, using its instruments, mainly excess reserves.