Lebanon has always followed a “de jure” floating exchange rate regime, though only in 1997 it had adopted a “de facto” fixed regime to the USD which survived till the summer of 2019, though it crashed down timidly initially but afterwards in a big crisis fashion. What is interesting is that emerging markets have moved towards more flexible regimes in the 1990s; however Lebanon elected to go against this trend, which in retrospect has proven to be costly and a sub-optimal choice.
So in retrospect, and for the sake of future prospects, what would have been or would be a better regime choice for the country? We will analyze this question by investigating the most important determinants of exchange rate regime choice.
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What is the Optimal Exchange Rate Regime Choice for Lebanon