Lebanese Potential Output Calculation and Business Cycles Identification

Document Type : Research Paper


Department of economics, Faculty of Economics and Business Administration, Lebanese University, Branch 1, El Hadath Beirut, Lebanon


The article measures the amplitude of the business cycles, and the output gap in Lebanon by determining the trend path of the GDP around which the actual output fluctuates. Business cycles facilitate the understanding of the economic dynamic’ fundamentals, they provide also a kind of support for the implementation of any monetary or economic policy. In this context, monetary policies are evaluated in order to assess their effectiveness on business cycles, the extent to which a shift in a monetary policy affects the dynamics of business cycles.
The Lebanese output gap is estimated through a structural method using the economic variables production function, which relies on economic theory and tries to make explicit the nature of constraints that limit output.
Results show that the unemployment rates in Lebanon were always much higher than the unemployment rates in Lebanon during the period of study were always much higher than the NAIRU, which means an important part of the human capital was unexploited. Moreover, the monetary policy in Lebanon impacted the business cycles and generated as a result expansion periods characterized by positive output growth. Worth mentioning that expansion periods were shortly lived, while stagnation and recession periods long-lasted for many quarters. However, a lack of intervention made all policies framework unable to support a certain macroeconomic stability, hence there was no major influence on the Lebanese economy, and their impact was barely felt which cannot be translated to substantial and extensive outcomes on different Lebanese economic aggregate variables.