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Analyzing The Transmission Mechanisms Of Monetary Policy In The Absence Of A National Currency: The Palestinian Case

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  • SHAKER SARSOUR

    (Economic Department, University of Siena, Siena, Italy 2010, Italy)

Abstract

This paper investigates and identifies the channels through which external or internal monetary policy shocks can affect the real economy and inflation in Palestine. Two approaches are used: The vector error correction model and ordinary least square simple regression.In estimating the performance of these models, actual quarterly data is used between Q1 2002 and Q2 2009; for the period of Q1 1996 to Q2 2009, a mix of actual and predicted data is used. Empirical results in general indicate that monetary policy shocks have limited influence on economic activities and inflation in Palestine. However, results show that pass-through from domestic lending interest rates of the US dollar (or Jordanian dinar) is higher than for the new Israeli shekel. They reveal a presence of significant but relatively low pass-through for policy rates onto domestic lending interest rates, and therefore, on real economic activities. Israeli monetary policy has a significant impact on Palestinian real economic activities, mainly net exports and on the inflation rate. Furthermore, the exchange rate channel influences GDP by affecting wealth and net exports. Finally, political conditions have had a significant and important impact on the behavior of the Palestinian people by affecting consumption levels.

Suggested Citation

  • Shaker Sarsour, 2012. "Analyzing The Transmission Mechanisms Of Monetary Policy In The Absence Of A National Currency: The Palestinian Case," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 4(02), pages 1-30.
    • Handle: RePEc:wsi:medjxx:v:04:y:2012:i:02:n:s1793812012500125
    DOI: 10.1142/S1793812012500125
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    References listed on IDEAS

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    1. Jérôme Creel* & Sandrine Levasseur, 2007. "Monetary Policy Transmission Mechanisms in the CEECs: How Important are the Differences with the Euro Area?," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(1), pages 30-59, February.
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    3. Ms. Magda E. Kandil & Samya Beidas-Strom, 2005. "Setting the Stage for a National Currency in the West Bank and Gaza: The Choice of Exchange Rate Regime," IMF Working Papers 2005/070, International Monetary Fund.
    4. David Cobham, 2004. "Alternative currency arrangements for a new Palestinian state," Money Macro and Finance (MMF) Research Group Conference 2004 13, Money Macro and Finance Research Group.
    5. repec:hal:wpspec:info:hdl:2441/2976 is not listed on IDEAS
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