Title: A unique monetary reaction rule: the case of Lebanon

Authors: Said Elfakhani; Khaled Abdallah; Samih Antoine Azar

Addresses: S. Olayan School of Business, American University of Beirut, Beirut, 1107-2020, Lebanon ' S. Olayan School of Business, American University of Beirut, Beirut, 1107-2020, Lebanon ' Faculty of Business Administration and Economics, Haigazian University, Beirut, Lebanon

Abstract: Purpose: This study describes a unique monetary reaction rule adopted by the Lebanese Central Bank. Unlike international standards in most countries, the Lebanese monetary rule maintains the supply and demand of money in equilibrium and neutralises money shocks. The paper determines whether money reactions are significant and if they are symmetric in magnitude. Design/methodology/approach: This study uses multivariate panel and system least-squares regressions to describe the Lebanese monetary rule with appropriate econometric controls, including a lagged foreign exchange rate in Lebanese funds to account for leaning against the wind policy. Findings: The monthly sample period from 1989 to 2018, which excludes recent and exceptional civil unrest, indicate that the two money supply and demand functions are stable for Lebanon. Originality: Separating monetary shocks into their distinct demand and supply constituents is original and productive in appraising central bank behaviour, and could explain many empirical puzzles in the literature.

Keywords: central banking; monetary reaction rule; money functions and shocks; foreign exchange rate; official intervention; Lebanon.

DOI: 10.1504/JGBA.2022.131472

Journal for Global Business Advancement, 2022 Vol.15 No.5, pp.664 - 682

Received: 06 Apr 2023
Accepted: 10 Apr 2023
Published online: 13 Jun 2023 *

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