The Economics of Bounced Checks in Lebanon

Authors

  • Samih Antoine Azar
  • Said Elfakhani American University of Beirut Beirut Lebanon
  • Khaled Abdallah Haigazian University Beirut Lebanon

Abstract

The purpose of this paper is to identify the variables that determine or explain the supply of bounced checks, either issued in Lebanese pounds or issued in US dollars. This is an area that the extant empirical research fails to cover, and hence, this paper is, by itself, quite innovative. Four major explanatory variables are identified. Two of them are structural, and the other two are under the control of a bank on its own, and of the central bank, or at least of the Association of Banks. The high values of the goodness-of-fit, the favorable econometric diagnostics, and the failure to reject stability, all point to the same direction: the models have all the necessary characteristics to predict correctly bounced checks. In case actual bounced checks are consistently and persistently higher than those predicted by the models, corrective action can be taken to avert a financial crisis. The first action is that banks can control the amount of loans they extend to their clientele. And the second action is by a manipulation of interest rates. It is understood that these two actions should be used sparingly and only in a case of financial crisis.

Keywords: bounced checks, multiple regression models, econometric prediction, banks, Lebanon.

JEL Classifications: C32, G21

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Author Biographies

Samih Antoine Azar

ProfessorFaculty of Business Administration & Economics

Said Elfakhani, American University of Beirut Beirut Lebanon

ProfessorOlayan School of Business

Khaled Abdallah, Haigazian University Beirut Lebanon

LecturerFaculty of Business Administration & Economics

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Published

2017-01-13

How to Cite

Azar, S. A., Elfakhani, S., & Abdallah, K. (2017). The Economics of Bounced Checks in Lebanon. International Journal of Economics and Financial Issues, 7(1), 106–114. Retrieved from https://econjournals.com/index.php/ijefi/article/view/3345

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