Saleh, Ali Salman and Harvie, Charles (2006) Monetary and fiscal policy and macroeconomic outcomes: The case of Lebanon. IUP Journal of Monetary Economics, 4 (4). pp. 64-85. ISSN 0972-9291

Abstract

This paper presents a macroeconomic model designed for Lebanon to analyze the impact of monetary and fiscal policy on macroeconomic outcomes under alternative assumptions related to the funding of fiscal budgetary deficits. The model emphasizes on the importance of rational expectations and the maintenance of continual equilibrium in financial markets but disequilibrium in non financial markets during the adjustment process arising from exogenous shocks. The model is empirically estimated using annual data for 1970-2000, and various monetary and fiscal policy scenarios, which are numerically simulated. Key policy implications from conducted simulations are emphasized. Simulation results indicate that government capital expenditure is preferred to government current expenditure in terms of producing favorable impacts upon private sector investment and the supply side of the economy and external developments. A gradual, rather than instantaneous, implementation of such expenditure results in considerably less volatility in terms of major macro outcomes during the adjustment process.

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