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

Author/Editor: Poghosyan, Tigran
Authorized for Distribution: November 1, 2010
Electronic Access: Free Full Text (PDF file size is 982KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

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.
 
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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
 
English  
    Published:   November 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010256   Pages:   15
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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