The Effect of Exchange Rate on Inflation: Iraq as a Case Study
Article Sidebar
THIS IS AN OPEN ACCESS ARTICLE UNDER THE CC BY LICENSE
Main Article Content
Abstract
This study examines the effect of exchange rate fluctuations on inflation in Iraq from 2005 to 2023. Using an ARDL model, the results demonstrate a significant short-term relationship between exchange rate movements and inflation, indicating that changes in the exchange rate exert immediate pressure on price levels. The Bound Test confirms the presence of a long-term equilibrium relationship, supported by the Fully Modified Least Squares (FMOLS) method, which shows a modest yet positive long-term effect of exchange rates on inflation. Diagnostic tests, confirm the robustness of the model and the absence of serial correlation and heteroscedasticity.
The findings highlight that while exchange rate volatility is a key driver of inflation, its long-term effects are moderated by structural economic factors such as Iraq's heavy reliance on oil revenues and external financial policies. These results underscore the importance of maintaining exchange rate stability and implementing effective monetary policies to mitigate inflationary pressures and support economic stability in Iraq.
Downloads
Article Details
References
Annual Reports of Banks Research Sample from 2005-2023
Abbas, Sabah Nouri. (2008). "The Impact of Inflation on the Equilibrium Exchange Rate of the Iraqi Dinar for the Period 1990-2005 (Applied Research)." Baghdad University College of Economic Sciences, Issue Seventeen, May 2
Al-Siddiq, Yousef Muhammad, & Halala, Mamoun Khalaf. (2021). "The impact of interest rates and inflation on bank credit in the Kingdom of Saudi Arabia during the period 1995 to 2018." International Journal of Economics and Business, Volume 11, Issue 1
Al-Farra, Maram Tayseer Mustafa, (2012), The Role of the Banking Sector in Financing Palestinian Economic Development for the Period (1995-2011), Master’s Thesis, Islamic University, Faculty of Commerce, Department of Economics and Political Science
Aziz, Heyman Tawfiq and Hassan, Jia Mohammed, (2021), The impact of the Iraqi dinar exchange rate on inflation rates in Iraq: An econometric analytical study for the period (2004-2018), Journal of university of Garmian, 8(3)
Dhaim, Kawthar Muhammad. (2023). "The relationship between inflation rates and some economic variables in the Iraqi economy for the period (2010-2020)." College of Administration and Economics, Wasit University. Iraqi Journal of Economic Sciences, No. 76
Ebiringa, Oforegbunam Thaddeus, & Anyaogu, Nneka B. (2014). "Exchange Rate, Inflation and Interest Rates Relationships: An Autoregressive Distributed Lag Analysis." Journal of Economics and Development Studies, Vol. 2, No. 2
Hamilton, Adam, (2018) Understanding Exchange Rates and Why They Are Important, reserve bank of Australia
MOROŞAN, Gheorghe & ZUBAŞ, Ioana Mădălina (2015) interest rate, exchange rate and inflation in Romania, correlates and interconnection, Journal of Public Administration, Finance and Law, Issue 8
Monfared, Sanam Shojaeipour & Akın, Fetullah, (2017), The Relationship Between Exchage Rates and Inflation: The Case of Iran, European Journal of Sustainable Development, Vol. 6, No. 4
Okhiria, Onosewalu, & Saliu, Taofeek Sesan. (2008). "Exchange rate variation and inflation in Nigeria (1970-2007)." Master Degree Project in Economics and Finance, University of Scovde
Purnomo, Agus, (2017). "The effect of inflation on the currency exchange rate seen in Islamic finance." Jurnal Muqtasid, 8(1)
Perpetua, Onuoha Ijeoma, (2014), "Impact of Exchange Rate Variation and Inflation on the Economic Growth of Nigeria: An Empirical Approach." Research Journal of Finance and Accounting, Vol. 5, No. 22
Qadi, Abdel Majeed, (2005), Introduction to Quantitative Economic Policies. Office of University Publications, Algeria, second edition
Sanchez, M., (2005). The link between interest rates and exchange rates. Do contractionary depreciations make a difference? ECB Working paper, Series no. 548.
Voznyuk, O. (2010). "Relation between interest rates and inflation." Master of Advanced Studies in Finance, ETH Zurich and University of Zurich, Switzerland
Wamucii, Joshua Chege, (2010). "The relationship between inflation and financial performance of commercial banks in Kenya." Management research project submitted in partial fulfillment of the requirements for the award of Master of Business Administration degree, School of Business, University of Nairobi
Washarit, Limuhanat Husayn, Wasamari, Khalid, & Alsalam, Eabd, (2019). "Inflation and economic growth: An econometric study using the threshold model in emerging countries, 1994-2017." Shahid Hamma Lakhdar University in El Oued, Faculty of Economic and Commercial Sciences and Facilitation Sciences, Algeria
Wali, Sabreen Adnan, & Kazem, Iman Alaa. (2020). "The impact of exchange rate fluctuations on the general budget of Iraq: A case study for the period (2004-2018)." Hammurabi Magazine, Issue 35, Eighth Year
Woo, WING T.,(1984). Exchange rates and the prices of nonfood nonfuel products. Brooking Papers On Economic Activity. 2, 511-530