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Abstract
The Palestinian Monetary Authority (PMA) was created following the declaration of principles signed in September 1993 between Israel and the PLO. Although the Palestinian Monetary Authority has many of the usual powers and functions of a central bank, it does not currently issue a domestic currency. Nonetheless, theoretical considerations suggest that by using its influence on the commercial banking sector, the Palestinian Monetary Authority might still be able to implement a monetary policy that stimulates real activity in the West Bank and Gaza Strip. However, based on an empirical evaluation of these theoretical considerations in the context of the West Bank and Gaza Strip economy, it is concluded that it is neither possible nor desirable for the Palestinian Monetary Authority to use monetary policy to promote short-run growth. The Palestinian Monetary Authority can, however, contribute to creating an economic environment conducive to sustainable growth by pursuing policies that maintain and enhance financial stability in the West Bank and Gaza Strip.
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