Ensuring Effectiveness of Economic and Monetary Policies through Considering Economic Schools of Thought: Lebanon 1990-2010
Author(s)
Georges N. Nehme
ABSTRACT
Decision makers and executives should have a macroeconomic approach in planning and fixing economic and monetary policies for their countries. A national economy should be considered as a system including three interdependent markets: Financial market, Labor market, and Goods and Services market. Any attempt to practice an economic or monetary policy emphasizing on one or two of these markets and neglecting the third will lead to public debts, high unemployment and/or inflation rates. This neglect will also increase the financial crises risk especially for developing countries. These developing countries are suffering from being not able to apply liberal policies, compete in the international multilateral trade system, and benefit from globalization. Why Lebanese government is still insisting on applying liberal policies, high tax rate, low government expenses and investments, fixed exchange rate, and high interest rate? Is it reasonable and possible to have a developed financial market with bank deposits equaling three times the Lebanese GDP, and at the same time, a very weak labor and goods and services markets characterized by 18% unemployment rate and a very low consumers’ purchasing power? How does Lebanon have a huge public debt equaling twice its national GDP and be considered by the IMF as the fourth country in economic growth progression in the region? Why not considering Mundell’s incompatibility triangle and Kaldor’s magic square to analyze this critical economic situation? Is switching from a currency board to a forward-looking crawling PEG one of the factors to break this vicious circle?
Decision makers and executives should have a macroeconomic approach in planning and fixing economic and monetary policies for their countries. A national economy should be considered as a system including three interdependent markets: Financial market, Labor market, and Goods and Services market. Any attempt to practice an economic or monetary policy emphasizing on one or two of these markets and neglecting the third will lead to public debts, high unemployment and/or inflation rates. This neglect will also increase the financial crises risk especially for developing countries. These developing countries are suffering from being not able to apply liberal policies, compete in the international multilateral trade system, and benefit from globalization. Why Lebanese government is still insisting on applying liberal policies, high tax rate, low government expenses and investments, fixed exchange rate, and high interest rate? Is it reasonable and possible to have a developed financial market with bank deposits equaling three times the Lebanese GDP, and at the same time, a very weak labor and goods and services markets characterized by 18% unemployment rate and a very low consumers’ purchasing power? How does Lebanon have a huge public debt equaling twice its national GDP and be considered by the IMF as the fourth country in economic growth progression in the region? Why not considering Mundell’s incompatibility triangle and Kaldor’s magic square to analyze this critical economic situation? Is switching from a currency board to a forward-looking crawling PEG one of the factors to break this vicious circle?
Cite this paper
Nehme, G. (2014) Ensuring Effectiveness of Economic and Monetary Policies through Considering Economic Schools of Thought: Lebanon 1990-2010. Open Journal of Social Sciences, 2, 197-205. doi: 10.4236/jss.2014.24020.
Nehme, G. (2014) Ensuring Effectiveness of Economic and Monetary Policies through Considering Economic Schools of Thought: Lebanon 1990-2010. Open Journal of Social Sciences, 2, 197-205. doi: 10.4236/jss.2014.24020.
References
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http://www.imf.org/external/pubs/nft/op/171/ [2] Notermans, T. (2000) Money, Markets and the State. Social Democratic Economic Policies since 1918, Cambridge University Press, Cambridge, 302.
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http://dx.doi.org/10.1016/S0304-3878(96)00428-2 [10] Ghosh, A.R., Gulde, A.-M. and Wolf, H.C. (1998) Currency Boards: The Ultimate Fix? IMF Working Paper.
http://www.imf.org/external/pubs/ft/wp/wp9808.pdf [11] Borensztein, E., Zettelmeyer, J. and Philippon, T. (2001) Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference? IMF Working Paper.
http://www.imf.org/external/pubs/ft/wp/2001/wp0101.pdf [12] Obstfeld, M. and Rogoff, K. (1995) The Mirage of Fixed Exchange Rates. Journal of Economic Perspectives, 9, 73-96.
http://dx.doi.org/10.1257/jep.9.4.73 [13] Ghosh, Gulde and Wolf (2000) On the Historical Record of Exits from Currency Boards. [14] Baliño, T., Bennett, A. and Borensztein, E. (1999) Monetary Policy in Dollarized Economies. IMF Occasional Paper.
http://www.imf.org/external/pubs/nft/op/171/
[1] Boltanski, L. and Chiappello, E. (1999) Le Nouvel Esprit du Capitalisme. Gallimard, Paris.
http://www.imf.org/external/pubs/nft/op/171/ [2] Notermans, T. (2000) Money, Markets and the State. Social Democratic Economic Policies since 1918, Cambridge University Press, Cambridge, 302.
http://dx.doi.org/10.1017/CBO9780511521607 [3] Verley, P. (1997) L’échelle du Monde. Gallimard, Paris. [4] Verley, P. (2005) Note critique. Encore L’Industrialisation Belge au XIXe Siècle: à Propos de Quelques Travaux Récents. Revue d’Histoire du XIXe Siècle, 31, 117-142. [5] Mankiw, G. (2009) Macroéconomie. 4th Edition, De Boeck, Paris. [6] Presidency of the Council of Ministers (2010) Economic Accounts of Lebanon, 2009.
http://www.finance.gov.lb/en-US/finance/EconomicDataStatistics/Pages/LatestEconomicIndicators.aspx [7] Blanchard, O. and Cohn, D. (2006) Macroéconomie. 4th Edition, Pearson, Paris. [8] Bubula, A. and Ölker-Robe, Ï. (2002) The Evolution of Exchange Rate Regimes since 1990: Evidence from de Facto Policies. IMF Working Paper.
http://www.imf.org/external/pubs/ft/wp/2002/wp02155.pdf [9] Collins, S.M. (1996) On Becoming More Flexible: Exchange Rate Regimes in Latin American and the Caribbean. Journal of Development Economics, 51, 117-138.
http://dx.doi.org/10.1016/S0304-3878(96)00428-2 [10] Ghosh, A.R., Gulde, A.-M. and Wolf, H.C. (1998) Currency Boards: The Ultimate Fix? IMF Working Paper.
http://www.imf.org/external/pubs/ft/wp/wp9808.pdf [11] Borensztein, E., Zettelmeyer, J. and Philippon, T. (2001) Monetary Independence in Emerging Markets: Does the Exchange Rate Regime Make a Difference? IMF Working Paper.
http://www.imf.org/external/pubs/ft/wp/2001/wp0101.pdf [12] Obstfeld, M. and Rogoff, K. (1995) The Mirage of Fixed Exchange Rates. Journal of Economic Perspectives, 9, 73-96.
http://dx.doi.org/10.1257/jep.9.4.73 [13] Ghosh, Gulde and Wolf (2000) On the Historical Record of Exits from Currency Boards. [14] Baliño, T., Bennett, A. and Borensztein, E. (1999) Monetary Policy in Dollarized Economies. IMF Occasional Paper.
http://www.imf.org/external/pubs/nft/op/171/