IDEAS home Printed from https://ideas.repec.org/a/sae/emffin/v7y2008i1p1-15.html
   My bibliography  Save this article

The Effect of the Lebanese Peg to the US Dollar on Market Efficiency and Risk

Author

Listed:
  • Samih Antoine Azar

    (Samih Antoine Azar is Associate Professor at Faculty of Business Administration and Economics, Haigazian University, Lebanon. E-mail: azars@haigazian.edu.lb)

Abstract

The theory of self-fulfilling currency attacks predicts that pegged foreign exchange rates are extremely sensitive to adverse and hostile speculation. This is true whenever fiscal policy and monetary policy are inconsistent with each other, or even when intensive and public official intervention is initiated by a central bank with limited foreign exchange reserves. The experience of Lebanon, with its peg to the US-dollar since December 1998, shows that contrary to the received wisdom, a peg can stabilise the financial markets and eliminate inefficiencies such as serial correlation, a bias of the forward rate and the presence of a Peso problem. Moreover, risk was not only reduced during the Lebanese peg but was also dissipated.

Suggested Citation

  • Samih Antoine Azar, 2008. "The Effect of the Lebanese Peg to the US Dollar on Market Efficiency and Risk," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(1), pages 1-15, January.
    • Handle: RePEc:sae:emffin:v:7:y:2008:i:1:p:1-15
    DOI: 10.1177/097265270700700101
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/097265270700700101
    Download Restriction: no
    File URL: https://libkey.io/10.1177/097265270700700101?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Sweeney, Richard J, 1986. "Beating the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 41(1), pages 163-182, March.
    2. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521466004, October.
    3. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
    4. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    5. Sweeney, R. J., 2000. "Does the Fed beat the foreign-exchange market?," Journal of Banking & Finance, Elsevier, vol. 24(5), pages 665-694, May.
    6. Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521460477, October.
    7. Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 1-18, January.
    8. Samih Antoine Azar, 2000. "Another look at the rationality of the stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 87-89.
    9. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    10. Sweeney, Richard J., 1997. "Do central banks lose on foreign-exchange intervention? A review article," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1667-1684, December.
    11. Taylor, Dean, 1982. "Official Intervention in the Foreign Exchange Market, or, Bet against the Central Bank," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 356-368, April.
    12. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
    13. Paul Krugman, 1995. "Currencies and Crises," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611090, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    2. Paul De Grauwe & Marianna Grimaldi, 2003. "Intervention in the Foreign Exchange Market in a Model with Noise Traders," Working Papers 162003, Hong Kong Institute for Monetary Research.
    3. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
    4. Peter Rowland, 2003. "Uncovered Interest Parity and the USD/COP Echange Rate," Borradores de Economia 227, Banco de la Republica de Colombia.
    5. Peter Rowland, 2003. "Forecasting the USD/COP Exchange Rate: A Random Walk a Variable Drift," Borradores de Economia 253, Banco de la Republica de Colombia.
    6. Peter Rowland, 2003. "Forecasting The Usd/Cop Exchange Rate: A Random Walk With A Variable Drift," Borradores de Economia 2736, Banco de la Republica.
    7. Paul De Grauwe & Marianna Grimaldi, 2004. "Bubbles and Crashes in a Behavioural Finance Model," CESifo Working Paper Series 1194, CESifo.
    8. Peter Rowland & Hugo OLiveros C., 2003. "Colombian Purchasing Power Parity Analysed Using a Framework of Multivariate Cointegration," Borradores de Economia 252, Banco de la Republica de Colombia.
    9. Peter Rowland & Hugo Oliveros, 2003. "Colombian Purchasing Power Parity Analysed Using A Framework of Multivariate Cointegration," Borradores de Economia 2150, Banco de la Republica.
    10. Martin D.D. Evans & Richard K. Lyons, 2017. "Order Flow and Exchange Rate Dynamics," World Scientific Book Chapters, in: Studies in Foreign Exchange Economics, chapter 6, pages 247-290, World Scientific Publishing Co. Pte. Ltd..
    11. Sergio Da Silva, 2004. "International Finance, Levy Distributions, and the Econophysics of Exchange Rates," International Finance 0405018, University Library of Munich, Germany.
    12. Paul De Grauwe & Marianna Grimaldi, 2014. "Exchange Rate Puzzles: A Tale of Switching Attractors," World Scientific Book Chapters, in: Exchange Rates and Global Financial Policies, chapter 3, pages 71-117, World Scientific Publishing Co. Pte. Ltd..
    13. Eduardo José Araújo Lima & Benjamin Miranda Tabak, 2008. "Exchange Rate Dynamics and the Relationship between the Random Walk Hypothesis and Official Interventions," Working Papers Series 173, Central Bank of Brazil, Research Department.
    14. Hodrick, Robert J., 1989. "Risk, uncertainty, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 433-459, May.
    15. Guy Meredith & Menzie D. Chinn, 1998. "Long-Horizon Uncovered Interest Rate Parity," NBER Working Papers 6797, National Bureau of Economic Research, Inc.
    16. Otavio De Medeiros, 2005. "Order Flow and Exchange Rate Dynamics in Brazil," Finance 0503019, University Library of Munich, Germany.
    17. Hau, Harald, 2002. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 611-630, August.
    18. Marianna Grimaldi & Paul De Grauwe, 2003. "Bubbling and Crashing Exchange Rates," CESifo Working Paper Series 1045, CESifo.
    19. Works, Richard Floyd, 2016. "Econometric modeling of exchange rate determinants by market classification: An empirical analysis of Japan and South Korea using the sticky-price monetary theory," MPRA Paper 76382, University Library of Munich, Germany.
    20. Michael Schroder & Robert Dornau, 2002. "Do forecasters use monetary models? an empirical analysis of exchange rate expectations," Applied Financial Economics, Taylor & Francis Journals, vol. 12(8), pages 535-543.

    More about this item

    Keywords

    International finance; foreign exchange rates; pegging; Lebanon; market efficiency; risk; forward rate unbiasedness; JEL Classification: F31; JEL Classification: C22;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:emffin:v:7:y:2008:i:1:p:1-15. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.ifmr.ac.in .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.