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Review of Middle East Economics and Finance

Ed. by Dibeh, Ghassan / Assaf, Ata / Cobham, David / Hakimian, Hassan / Henry, Clement M.

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Volume 14, Issue 1

Long-run and Short-run Monetary Policy Transmission Channels in Lebanon

Ali Awdeh
  • Corresponding author
  • Faculty of Economics and Business Administration, Lebanese University, Beirut, Lebanon
  • Faculty of Economics and Business Administration, Lebanese University, Beirut, Lebanon
  • Department of Finance, Lebanese University, Beirut, Lebanon
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Published Online: 2018-05-01 | DOI: https://doi.org/10.1515/rmeef-2017-0023


This research detects the existence of monetary policy transmission mechanisms in Lebanon through which the actions of the central bank propagate. By adopting co-integration analysis and VECM frameworks, and by exploiting monthly data between January 1994 and December 2016, the research revealed the existence of a long-run interest rate channel, affecting both resident private sector deposits and credit to the private sector. Another short-run capital channel was revealed, affecting total credit provided by the banking sector. Additionally, the empirical results show that (1) deposit inflows are not attracted by high interest rates, but stimulated by confidence provided by large foreign currency reserves held by the central banks; (2) non-residents deposit inflows could represent a substitute for local credit; (3) banks pass-through any increase in funding cost to borrowers; and (4) an increase in external interest rates may trigger deposit outflows.

Keywords: monetary policy transmission channels; currency peg; interest rates; vector error correction model

JEL Classification: E51; E52; E58


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About the article

Published Online: 2018-05-01

Citation Information: Review of Middle East Economics and Finance, Volume 14, Issue 1, 20170023, ISSN (Online) 1475-3693, DOI: https://doi.org/10.1515/rmeef-2017-0023.

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