Abstract
This study aims to specify the best model to estimate the real equilibrium exchange rate of the Libyan dinner during the period 1985-2020 utilizing ARDL model. The results of this study indicate that the best model explains the determinants of the actual exchange rate (ARE) and predicts the equilibrium real exchange rate (ERER) is the one that consists of oil revenues (OR), terms of trade (TOT), ration of bored money supply to gross domestic product (M2/GDP), ratio of domestic inflation to forging inflation (DINF/FINF) and DUMMY. They also point out that OR is the domino force as it drives the exchange rate of the Libyan dollar against the US dollar. The results also reveal that the misalignment between the AER and the ERER had notably increased since the 2002 devaluation. This study provides valuable information for monetary policy makers by establishing a benchmark for the ERER. This information would assist them to reasonably set the exchange rate for future economic purposes.
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