THE IMPACT OF MONETARY POLICY ON GROSS DOMESTIC PRODUCT IN IRAQ: NEW EVIDENCE USING THE AUTOREGRESSIVE DISTRIBUTED LAG MODEL

Abstract

The influence of monetary policy on Iraq's GDP throughout the unusually long period of 1985–2022 is thoroughly reviewed in this paper. The research examines the intricate relationships between important economic variables, such as GDP, inflation, money supply, exchange rates, and interest rates, using the Autoregressive Distributed Lag (ARDL) model. The findings reveal a significant negative correlation between the exchange rate and GDP, aligning with established economic theories that underscore the critical relationship between these two fundamental factors. Similarly, inflation exhibited a significant negative influence on GDP, further corroborating the theoretical expectations that higher inflation can detrimentally affect economic output. However, in sharp contrast to mainstream economic assumptions, evidence reveals no statistically significant link between interest rates and GDP, challenging the prevalent notion that higher interest rates consistently lead to reduced economic growth. Moreover, this article illustrates a significant positive correlation between money supply and GDP, which reinforces theoretical predictions regarding the role of liquidity in fostering economic activity. These findings collectively support the notion of long-term equilibrium among the study variables, suggesting that while some relationships adhere to traditional economic models, others prompt a re-evaluation of expectations. Based on overall findings that have been produced, the study strongly recommends that Iraq's central bank use unorthodox monetary actions that will stimulate GDP growth. Such strategies should include the enhancement of productivity-focused frameworks that prioritize economic resilience and sustainable development, ultimately positioning Iraq for a more robust economic future.