The Role of Monetary and Fiscal Policy in Controlling the Growth Rates of The Money Supply in The Iraqi Economy

Abstract

The importance of this study stems from the pivotal role of money supply in achieving monetary and economic stability in Iraq. The research problem lies in the lack of clarity regarding the effectiveness of monetary and fiscal policies in controlling money supply growth rates during the period 1995–2024. The study is based on the hypothesis that the variables of monetary and fiscal policies exert significant effects on money supply growth in both the short and long run. The study adopts both inductive and deductive approaches, relying on annual data obtained from the Central Bank of Iraq, the World Bank, and the International Monetary Fund. The Autoregressive Distributed Lag (ARDL) model is employed to examine the effects of the policy interest rate, international reserves, net foreign assets, government expenditure, public debt, and budget deficit/surplus on money supply growth. The findings reveal that the variables are integrated at different orders, I (0) and I (1), which justifies the application of the ARDL methodology. The Bounds Test confirms the existence of a long-run equilibrium relationship among the variables. The results indicate significant negative effects of the budget deficit/surplus and net foreign assets, while the policy interest rate, international reserves, and public debt exert significant positive effects on money supply growth. Government expenditure, however, shows no significant impact. Furthermore, the error correction results indicate a high speed of adjustment toward long-run equilibrium.