What is it about?

The research examines the adequacy of reserves that are held by the central bank of Lebanon according to the adequacy criteria that are put by the International Monetary Fund, the World Bank and a group of economists. The study explores further the relationship between the analytical presentation of the balance of payment vis a vis the level of reserves. The study utilizes the vector error correction model with the impulse response function to explore the impact of dollarization, trade deficit, capital account and the real effective exchange rate on reserves in the short and long terms.

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Why is it important?

Lebanon has one of the highest debt to GDP ratio, and it suffers from chronic deficit in its overall government budget. In the absence of proper fiscal policy, the role of monetary policy became crucial to the survival of the financial sector and the economy. Hence, the study explores the causes of reserves fluctuations in the short and long term. As the economic and financial situation in Lebanon escalate, the research can be very useful to reformulate fiscal and monetary policies as well as the proper management of public debt. Also, the methodology adopted can be very useful for Central banks to assess the adequacy of reserve holdings.

Perspectives

I hope policy makers in Lebanon read this research and put it to the best usage.

Dr. Kassim M. Dakhlallah

Read the Original

This page is a summary of: Reserve Adequacies and the Determinants of Foreign Exchange Reserves – Empirical Analysis through the Vector Error Correction Model: The Case of Lebanon, Review of Middle East Economics and Finance, November 2019, De Gruyter, DOI: 10.1515/rmeef-2017-0033.
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