Monetary Policy and Economic Growth in Lebanon

What is it about?

The central bank of Lebanon adopts exchange rate targeting since 1994 and exploits several instruments (particularly interest rate) to stimulate foreign financial inflows. This study aims at testing the impact of this strategy on economic performance and welfare in both the short- and long-run. In this regard, we exploit monthly data covering the period January 2002-June 2017 and implement cointegration analysis and VEC model. The empirical results suggest that monetary tools exploited by the central bank of Lebanon depress economic growth in the long-run. Moreover, despite their importance for external balance, financial inflows may hinder economic activity in both the short- and long-run. On the other hand, monetary policy transmission channels through bank credit and capital show to play a constructive role for GDP growth.

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