Resumen de Current account balance, inflation, industry and sustainable development in Jordan

Mohammad Alawin, Mohammad Oqaily

• The study aims at measuring the impact of the current account on inflation in Jordan. In order to achieve that goal, the study presents theoretical and econometric framework for an economic model that includes the determinants of inflation where current account deficit is one of them. The study finds out that the increase in current account deficit affects domestic inflation negatively in the long run. This result would be attributed to the fact that current account deficit absorbs big part of the excess in the domestic demand, in addition to the long run flexibility of the economy to produce substitutes for imported goods. However, in the short run, it was found that current account deficit affects domestic inflation positively. It was found that for this period there is no enough flexibility for the Jordanian economy to produce enough goods to substitute imports, which leads to inflation.