Financial Policy in pre-1975 Lebanon: A Success Story

Abstract

The behavior of the authorities during the pre-1975 period in Lebanon is worth studying because of their highly conservative economic policies at that time. This period witnessed two institutional settings: (1) pre-central bank, 1951-1963, and (2) post-central bank, 1964-1974. The theory that is presented implies four main hypotheses. All of these hypotheses are validated. The main conclusions are that: (1) during the whole period there was a strong employment motive for the authorities, (2) the average inflation rate for the whole period was positive, but inflationary expectations were well contained, and (3) the log of the price level followed a deterministic trend making stabilization policy possible and effective. This leads us to conclude that financial policy in pre-1975 Lebanon was a success involving minimal cost.