Interest Rate Determination in Lebanon

24 Pages Posted: 17 May 2006

See all articles by Tushar Poddar

Tushar Poddar

International Monetary Fund (IMF) - Middle East and Central Asia Department

Mangal Goswami

International Monetary Fund (IMF)

Juan A. Solé

International Monetary Fund (IMF)

Victor Echévarria Icaza

affiliation not provided to SSRN

Date Written: April 2006

Abstract

This paper seeks to understand how interest rates are formed in Lebanon, by focusing on the pass-through from benchmark rates, prevailing liquidity conditions, and the main characteristics of the Lebanese economy, notably its open capital account, fixed exchange rate, high government borrowing requirement, large public debt, and high degree of deposit dollarization. We find that international interest rates are an important element in the determination of interest rates in Lebanon. In particular, the pass-through of global benchmark rates to interest rates on sovereign bonds is about 70 percent. The less-than-complete pass-through could be attributed to a home-bias effect reflecting a relatively stable and dedicated investor base. The study also shows that interest rates in Lebanon are affected by liquidity conditions as well as perceived sovereign risk.

Keywords: interest rates, Lebanon, sovereign risk

JEL Classification: E43, E52

Suggested Citation

Poddar, Tushar and Goswami, Mangal and Sole, Juan A. and Echévarria Icaza, Victor, Interest Rate Determination in Lebanon (April 2006). IMF Working Paper, Vol. , pp. 1-24, 2006. Available at SSRN: https://ssrn.com/abstract=902761

Tushar Poddar (Contact Author)

International Monetary Fund (IMF) - Middle East and Central Asia Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Mangal Goswami

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Juan A. Sole

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Victor Echévarria Icaza

affiliation not provided to SSRN

No Address Available

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