Excess Reserve Holdings of Jordan Commercial Banks: VARX Implementation

This study tends to fill a gap in the literature as it considers a small open developing country in a region that takes the attention of the world. The main aim of this study is to examine the factors that determine commercial banks excess reserve holdings in Jordan banking system. Vector Autoregressive with explanatory variables (VARX) technique is used. The empirical results suggest that excess reserve in Jordan banking system tend to reach its long term level after four quarters and the correction process occurs every six months. Another finding, as banks customers' prefer to hold currency banks prefer to hold less excess reserve. Moreover, banks tend to hold more excess reserve in booming economies. Finally, monetary policy tools seem to be affecting factors in banks excess reserve holding preferences. However, fiscal policy does not seem to be within the factors that affect excess reserve holdings.