The Monetary Approach and Addresing Diseqlubrium in Balance of Payments: "An applied study on the Libyan economy for the period 1990-2023"

Abstract

The study aimed to test the suitability and effectiveness of the monetary approach applied to the Libyan balance of payments data covering the period 1990-2023. To achieve the study objective, the Advanced Dickey-Fuller and Philip Perron tests were used to examine the stability of the study variables, and the cointegration approach based on the Autoregressive Distributed Lag (ARDL) model was applied to examine the long run relationship among the study variables. The Error Correction Model (ECM) was also used in analyzing the relationship, which measures the return to equilibrium in the event of an imbalance resulting from shocks occurring in the independent variables. The study concluded that there is a positive and significant effect of the GDP variable on the balance of payments, which is measured by net foreign assets in the short and long term, and that the variable expressing monetary policy, represented by net domestic assets, is ineffective and insignificant in influencing the balance of payments balance of foreign assets, and that the role of monetary policy in addressing the imbalance in the Libyan balance of payments is given less importance.