Twin deficits and the sustainability of public debt and exchange rate policies in Lebanon

Simon Neaime

Research in International Business and Finance, 2015, vol. 33, issue C, 127-143

Abstract: This paper examines empirically using time series econometric models the sustainability of public debt and exchange rate policies, as well as, the relationship between current account and budget deficits in the emerging small open economy of Lebanon. The empirical results point to unsustainable debt and exchange rate policies. Other empirical results support the existence of a uni-directional causal relationship, in the short run, between the budget and current account deficits, indicating that rising fiscal deficits have started to put even more strain on the current account deficits and on the national public debt. To avoid a future depreciation of the exchange rate and perhaps a fiscal and currency crises, the government will have to timely introduce austerity measures to curb the negative implications of its rising budget and current account deficits and debt on Lebanon's economy.

Keywords: Debt sustainability; Current account; Budget deficit; Exchange rates; Lebanon (search for similar items in EconPapers)
JEL-codes: E69 F31 F32 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:33:y:2015:i:c:p:127-143

DOI: 10.1016/j.ribaf.2014.09.004

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