The Effects of Financial liberalization on Monetary Policy and the ‎Money Multiplier‏ ‏‎(The Jordanian Case)‎

The Effects of Financial liberalization on Monetary Policy and the ‎Money Multiplier‏ ‏‎(The Jordanian Case)‎

Nizar El-Isa

drnazarelissa@hotmail.com

Received : 12-11-2005 , Accepted : 29-08-2006

Language: Arabic

Abstract

Financial Liberalization that started in the 1980`s countries to confront monetary policy with several challenges that important to help studying and following it effects especially in LDC`S The Maine purpose of this paper is to investigate the possible effects of financial Liberlization on monetary policy and its instruments. By comparing pre-liberalization period with post liberalization period in Jordan, the following conclusions have been reached. (1) Deepening of the financial and banking sector in the Jordanian economy with an increase in the private sector share in total domestic credit. (2) Substantial increase in total domestic credit and in the use of checks as an instrument of payment. (3) A noticeable increase in both (M1) and (M2) measures of the supply of money in addition to changesin the composition of the supply of money and its velocity. (4) The Central Bank of Jordan was able to maintain a stable foreign exchange rate (anchored to US dollar) with an expansionary monetary policy. (5) Jordan has scored reasonable success in moving from direct instruments to indirect instruments of monetary policy. (6) Market forces have become more effective in monetary policy which is indicated by a significant correlation with the money multiplier. In view of the above, study recommends that the Central Bank does the following: [1]. To continue the gradual expansion of financial liberalization. [2] To keep control of the supply of money by using deposit certificates in controlling the monetary base and domestic liquidity.

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