Monetary policy and business cycle fluctuations of the Lebanese economy

The aim of this paper is to analyze how aggregate activity in Lebanon fluctuates with regard to recurrent shocks. The research starts by identifying the Lebanese economic business cycle from the first quarter of 1998 to the fourth quarter of 2015 adopting a statistical method. Furthermore, this research studies the relationship between the capacity utilization rate and the inflation rate to explore theoretically and empirically how monetary and real shocks account for the disturbances that affect the economic activity. Findings prove that, over the studied period, the Lebanese economy performs largely under its full capacity and that the capacity utilization rate is related to inflation in the short run, but not in the long run. In other terms, findings prove that monetary factors account for business cycle disturbances of the Lebanese economy in short run, but not in the long run.