Abstract
We show that an American monetary shock wields an influence, though limited, over the Lebanese output in accordance with the literature advances. However, as we are waiting for a stronger transmission of U.S. short-term rates to Lebanese short-term rates, we notice that this transmission is weak in the first year. The result can be explained by the presence of pricing-to-market. After the end of the first year, we find the traditional result where the increase in the American interest rate is transmitted integrally to the Lebanese interest rate. We recognize this phenomenon as the dollarization effect.
Highlights
We study the international transmission of monetary shocks in the case of a dollarized economy
After a review of the theory and the empirical analyses of international transmission of monetary shocks, and an analysis of dollarization, we study the international transmission of American monetary shocks to the Lebanese economy with the help of an econometric model
We show that an American monetary shock wields an influence, though limited, over the Lebanese output in accordance with the literature advances
Summary
We study the international transmission of monetary shocks in the case of a dollarized economy. After a review of the theory and the empirical analyses of international transmission of monetary shocks, and an analysis of dollarization, we study the international transmission of American monetary shocks to the Lebanese economy with the help of an econometric model. Even if most researchers examine the issue in light of fluctuating exchange rates and producers’ currency pricing, others defend the necessity to integrate monopolistic competition and sales policies, mainly the pricing-to-market (or PTM). Another aspect of international transmission, which has not yet been fully addressed, is that of the dollarization (which will be explained further in Section 3 of the article). We expand on updated analyses and display the results of empirical work
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