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Exchange Rate "Fundamentals" versus Speculation in a Developing Economy: An Illustrative Example Using Lebanese Data

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  • Christopher M. Towe

    (International Monetary Fund)

Abstract

Competing hypotheses about what causes excessive exchange rate volatility--speculative bubbles or "fundamental" economic variables--are examined for the Lebanese pound during its protracted depreciation from end-1982 to November 1987 and its marked appreciation over the following six months. Reduced-form and time-series models of the exchange rate are estimated and tested for nonstationarity. The results suggest that much of the pound's volatility was consistent with excessive growth in domestic-versus foreign-currency-denominated liquidity rather than speculation.

Suggested Citation

  • Christopher M. Towe, 1989. "Exchange Rate "Fundamentals" versus Speculation in a Developing Economy: An Illustrative Example Using Lebanese Data," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 678-707, September.
    • Handle: RePEc:pal:imfstp:v:36:y:1989:i:3:p:678-707
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    Cited by:

    1. Bolbol, Ali A., 1999. "Seigniorage, Dollarization and Public Debt: The Lebanese Civil War and Recovery Experience, 1982-97," World Development, Elsevier, vol. 27(10), pages 1861-1873, October.

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