Effect of Money Supply on Real Output and Price in Jordan: An Empirical Study

Zakia A. Mishal, Imad M. Abu-Dallo

Abstract


This paper presents empirical evidence on the relationship between money and output in Jordan. The analysis of the effect of real money supply on real GDP and the price level focused on evidence from vector autoregressions. The study uses quarterly data for the period (1990 to 2010). The Johansen Cointegration Test showed a lack of integration between the joint variables of the study. The paper also examined the Granger Causality between the variables within the Vector Autoregression Model (VAR) showing a one way causality from real money supply (RM2) to real output (RGDP), and a two-way causal relationship between real output (RGDP) and the price level. This causality is reflected in the analysis of Variance Decomposition and Response Function for the Reaction.

Keywords


Monetary Policy, Money Supply, GDP, Price Level, Vector Autoregression Model (VAR), Variance Decomposition, Response Function for the Reaction.

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