Twenty years of monetary policy in Lebanon (1993-2012) :impact of the exchange-rate-based stabilization on economic performance -

Abstract

Current monetary policy in Lebanon was initially designed and intended to accommodate the prerequisites of reconstruction financing in 1993 namely, by restoring exchange-rate stability, instigating expectations of price stability, and subsequently maintaining a fixed exchange rate and high rates of interest. In that period, the bid was to enable the Treasury to line up local and foreign financial resources needed for reconstruction spending. This policy, however, has outlived its original purpose and may now be regarded as mainly applying tools of liquidity management in order to consolidate price and exchange-rate fixity. Its application as such is stirring the classical controversy pertaining to the trade-off – real or perceived – between monetary stability and real economic growth. After a general introduction in chapter I, chapter II provides an overview of the Lebanese monetary policy since the establishment of the ERBS model. The third chapter is a literature review of conceptual, analytical and empirical work done on ERBS monetary policy as a tool of economic management and an evaluation of this approach as applied in the Lebanese context. Chapter IV elaborates on the tools used by monetary authorities in Lebanon that allowed the safeguard of the ERBS model for two decades and provides an empirical test and analysis of main factors constituting possible threats to the model. Chapter V concludes the thesis with policy implications.