Osama D. Sweidan

Asymmetric central bank's preference and inflation rate in Jordan

Purpose - The purpose of this paper is to examine the hypothesis that a central banks asymmetric preferences are able to explain inflation rate in a developing country. In addition, it seeks to help comprehend movements of inflation rate in Jordan and to understand Central Bank of Jordan preferences regarding inflation rate and output. Design/methodology/approach - A standard monetary model consists of a central banks loss function and an economy structure is constructed, which acts as a constraint on the central banks behavior. Then, a distribute-lag version of the derived model is estimated using ordinary least squares method. Findings - The empirical evidence from the Jordanian economy shows that inflation rate relies on the variances of inflation rate and the variances of output. This finding supports the hypothesis that a central banks asymmetric loss function is able to justify inflation rate movements. Moreover, the Jordanian central banker prefers higher inflation rate and higher level of output. Originality/value - The paper provides evidence from a developing country regarding the ability of the asymmetric central bank preferences to justify inflation rate movement. In addition, the paper links central banks losses with the uncertainty level and inflation rate in the economy.

Central Bank Losses: Causes and Consequences

This paper seeks to understand the causes and consequences of central banks losses. Ignorance of this vital issue over a sustained period has led to negative impacts on economies and on central banking and monetary policy effectiveness. Data from developing countries and economies in transition show that central bank losses have reached significant magnitudes. Engaging in quasi-fiscal activities is responsible for most such losses because it increases central banks expenditures. The main features of these fiscal activities are their large size and riskiness, and they are difficult to control. Central bank revenues can also be negatively affected because of declines in inflation rates and in the demand for money.

The Asymmetric Loss Function and the Central Banks’ Ability in Developing Countries

Abstractn This paper seeks to develop a theoretical strand of research in monetary economics by modelling central bank ability in the loss function. Recently, many working papers issued by the International Monetary Fund (IMF) prove that some central banks, particularly from developing countries, are suffering from serious operational problems that might affect their abilities to control the economy. Simultaneously, a literature review shows that the movements are toward using asymmetric loss function. Therefore, we utilize this function in the standard monetary approach. The results proved that both central bank ability and preference in developing countries are fundamental to explain inflation bias and the movement of monetary policy instrument.

Energy Consumption and Real Output: New Evidence from the UAE

The current paper seeks to examine the relationship between energy consumption and real output in the United Arab Emirates (UAE) economy. Technically, we assess the following two questions: ‘does the increase in energy consumption cause more economic growth in the UAE economy?’ or ‘does the rapid economic growth lead to more energy consumption?’ We utilise the bounds testing approach to cointegration and error correction model and Granger causality test to achieve the paper goal. The paper employs an annual data series of the UAE real gross domestic product and energy consumption over the 1973–2008 period. The findings of the paper have two levels: short‐run and long‐run. In the short‐run, the results reveal a clear statistically significant bidirectional positive relationship between energy consumption and real output in the UAE economy. However, in the long‐run the estimate illustrates only one relationship prevails from the short‐run. This one is the statistically significant positive unidirectional relationship running from real output to energy consumption.

Monetary policy inertia: case of Jordan

Purpose - The purpose of this paper is to examine the inertia of monetary policy in the Jordanian economy, in which the monetary policy is neutral owing to the adoption of a fixed exchange rate with the US dollar. The question of the current paper is: Does monetary policy inertia exist in such an economy despite the fact that the exchange rate is pegged to a foreign currency? Design/methodology/approach - To test the hypothesis of the current paper in Jordan, the Taylor rule, adjusted to be consistent with the context of monetary policy in Jordan, is estimated. Moreover, the model is estimated by two techniques: OLS and the Kalman filter, using quarterly data over the period (1994:1-2007:1). Findings - The empirical evidence from the Jordanian economy shows that monetary policy inertia is highly significant in Jordan. The coefficient of the lagged interest rate is estimated to lie between 0.60 and 0.69. Moreover, the evidence illustrates that both inflation rate and output gap have an insignificant effect on setting the policy rate. Further, the policy interest rate seems to be set gradually in reaction to monetary policy inertia, unobserved variable and foreign interest rate. Originality/value - The paper investigates monetary policy inertia in a developing country whose economy is small, widely open and has a fixed exchange rate with the US dollar.

The influence of political regime vs political instability on real output: Evidence from the MENA region

Purpose n n n n nThe purpose of this paper is to empirically compare and contrast the effect of the nature of the political regime vs the political instability (PI) on real output in a group of countries from the Middle East and North Africa (MENA) during the period 1980-2011. This part of the world has been going through a series of unstable political regimes and continuous PI events for over seven decades. n n n n nDesign/methodology/approach n n n n nThe author employs a time-series cross-sectional Prais-Winsten regression model with panel-corrected standard errors. n n n n nFindings n n n n nThe author concludes that the relationship between the nature of the political regime and real output is mixed (negative and positive); this impact seems to get changed to a positive value whenever the regimes’ instability events are mitigated. However, the influence of PI on real output has a negative benchmark level. The author also notices that the effect of the political regime on real output is stronger over all the sample countries of the study. The results depart somehow from the previous studies’ findings. Therefore, the implication of the author’s conclusion is to investigate how and why the effects of these uncertainties turned positive. n n n n nOriginality/value n n n n nThe paper contributes to the literature from three perspectives. First, the author compares the effects on real output from different types of political system uncertainties. Second, the author extracts evidence on this topic from the most unstable region of the world, the MENA region. Third, the author uses a new econometric technique compared to the previous studies.