After the mid 1980s, Lebanon experienced high inflationary and currency depreciation episodes, whereby “financial dollarization” has persisted since then. Deposit dollarization and its policy implications in Lebanon are severely in lack of solid empirical foundations, especially with the discussed de-dollarization process. To clarify the discussion, three theories explaining dollarization are conversed, currency substitution view, minimum variance portfolio theory and the institutional view. This paper presents a simple model to capture the determinants of financial dollarization within an analytical and theoretical framework. OLS and Cochrane-Orcutt estimation methods are implemented; the latter solving for serial correlation. The findings display that: (a) financial dollarization is persistent in Lebanon even after improving economic situations (irreversibility of dollarization), (b) when the interest rate on LP deposits increases, deposit dollarization levels are reduced; and (c) political chaos worsens the situation in its upward shifting of deposit dollarization levels (institutional view).
|School:||University of Leeds (United Kingdom)|
|Source:||MAI 48/04M, Masters Abstracts International|
|Subjects:||Economics, Finance, Public policy|
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