Slowdown of Credit Flows in Jordan in the Wake of the Global Financial Crisis: Supply or Demand Driven?

Author/Editor: Poghosyan, Tigran
Publication Date: November 01, 2010
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Summary: This paper estimates a disequilibrium model of credit supply and demand to evaluate the relative role of these factors in the slowdown of credit flows in the Jordanian economy in the wake of the global financial crisis. The empirical analysis suggests that the credit stagnation is mainly driven by the restricted credit supply amid tighter monetary policy conditions in Jordan relative to the United States, as evidenced by the widened interest differential between the Central Bank of Jordan (CBJ) re-discount and the U.S. Federal Reserve funds rates. Although it appears that demand side factors related to the slowdown of economic activity have also had an impact, their role has been relatively modest. The estimation results imply that economic policies targeted towards stimulating supply of credit are likely to be a more effective tool for expanding credit flows relative to demand stimulating policies.
Series: Working Paper No. 10/256
Subject(s): Bank credit | Capital markets | Credit demand | Credit restraint | Economic models | Financial crisis | Global Financial Crisis 2008-2009 | Jordan | Monetary policy

Author's Keyword(s): credit crunch | financial crisis | Jordan
Publication Date: November 01, 2010
Format: Paper
Stock No: WPIEA2010256 Pages: 15
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