The Effectiveness of Governmental Monetary Policies on Economic Performance: Middle East Experiment

Abstract

The current study was stimulated by the ongoing widespread debate about the effectiveness of monetary policy in improving economic performance. The study employed time series data obtained from the bulletins of the Central Bank of Jordan cover a period of 15 years from the third quarter of 2008 to the second quarter of 2023 with a total of 60 observations. The St. Louis methodology was adopted in order to verify the objectives of the study. The Granger test was also applied to verify the causal relationships and their direction between money supply and general price index from one side and real GDP from the other side. In order to create further evidence for the robustness of this relationship an additional tests-the VECM and FMOLS were conducted for predicting the study model. The results revealed that data were stationary at all levels. Moreover, the Granger test exposed unidirectional relationship between these variables (money supply, consumer price index) and real GDP, and therefore the null hypotheses of the study were rejected, and evidence was recognized; that the two variables were able to estimate the changes in RGDP. Further indication of the robustness on this relationship was obtained by the VECM and FMOLS tests that validated the prediction model of the study. The collective results of the study established an essential positive influence for money supply on RGDP in the Jordanian context.