The Impact of Monetary Policy on Foreign Reserves: MABP Approach

This paper aims to investigate the short and long-run impacts of monetary policy on jordanian foreign reserves for the period (1980-2012) in the context of the monetary approach to the balance of payments (mabp) and the reserve-flow equation. in doing so, the autoregressive distributed lag (ardl) bounds testing approach of cointegration is employed. the empirical results of the bounds testing approach have revealed the existence of a long-run relationship among foreign reserves, determinants of money demand, and the broad definition of money, m2. moreover, the long-run parameters of the model came in line with the theoretical propositions of the monetary approach since money supply has a negative and statistically significant impact on foreign reserves, while domestic income and domestic price have positive and statistically significant impacts on foreign reserves. domestic interest rate has a negative and statistically significant impact on foreign reserves, which is consistent with the mabp approach.