Fiscal Monetary and Exchange Rate Policies in a Small Open Economy

Abstract

After investigating debt sustainability in Lebanon, this chapter examines the conduct of monetary policy during the last decade. The empirical section looks at the long-run relationship between the nominal exchange rate and the inflation rate by employing Johansen co-integration technique. The resulting coefficient estimates suggest that while the Lebanese monetary authority has succeeded in containing inflationary pressures by adopting a monetary policy rule targeting the nominal exchange rate, it should have adopted a real exchange rate targeting policy to dampen the effects of its current policy on interest rates, public debt and budget deficits, and the growth in gross domestic product.

Citation

Neaime, S. (2005), "Fiscal Monetary and Exchange Rate Policies in a Small Open Economy", Neaime, S. and Colton, N.A. (Ed.) Money and Finance in the Middle East: Missed Oportunities or Future Prospects? (Research in Middle East Economics, Vol. 6), Emerald Group Publishing Limited, Leeds, pp. 233-249. https://doi.org/10.1016/S1094-5334(05)06011-5