Testing for Inflationary Inertia Case of Lebanon
Kassim M. Dakhlallah

Abstract
Many countries around the globe adopted the policy of fixing the exchange rate as a tool to stabilize for inflation. While the stabilization tool succeeded in changing the direction of the price level in one economy, it failed in another. This paper investigates as to whether the stabilization policy in Lebanon altered the direction of the price level by using advanced empirical analysis. Of great importance is the Edward Model. The model empirically investigates the way in which the adoption of a nominal exchange-rate anchor affected the degree of inflationary inertia conditions under which a disinflation program based on a pegged exchange rate may have a positive effect on the stabilization process. Additional test like the Chow Point Test for structural break at a specific date, the stabilization date, is used as well. Both tests are sufficient to explore whether the stabilization policy was effective in altering the direction of the price level.

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