Measuring the impact of certain monetary variables on the exchange rate in the Iraqi economy for the period (2004–2024) using the VECM vector error correction model
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Abstract
The exchange rate is one of the most important monetary indicators reflecting the performance of the national economy, representing a fundamental pillar upon which the economies of both developed and developing countries rest. Most governments strive to adopt policies that ensure the stability of the local currency to avoid sharp fluctuations that could weaken confidence in the national economy. The exchange rate holds particular importance within monetary policy, as it is sometimes used as an intermediate target or an implementation tool, and sometimes as an indicator of the economy's competitiveness through its impact on elements of economic growth such as investment, trade openness, inflation, money supply, foreign trade, and foreign exchange reserves. This research aims to analyze the nature of the exchange rate in Iraq and study the impact of a set of monetary variables on it during the period (2004–2024), using the Vector Error Correction Model (VECM). The study reached a set of conclusions that can contribute to reducing exchange rate volatility and enhancing its stability. The study concluded that Iraqi monetary policy, despite its success in achieving relative exchange rate stability through currency auctions and foreign reserves, has not yet achieved significant stability.
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