Measurement of Mutual Effect Transition Mechanisms of Monetary Policy and Economic Growth in Iraq Using Toda - Yamamoto Approach for the Period (1990-2019)

Abstract

Economic growth is one of the fundamental goals governments seek and aspire to, representing the material conclusion of economic and non-economic efforts in society. It is one of the necessary conditions for improving the standard of living and prosperity of communities to achieve a sustainable growth rate as an expression of the entire development process to raise economic growth rates in the long term. This research, therefore, included knowledge of the causal relationship between monetary policy indicators in both the interest rate and the offer of cash and exchange rate in the direction of economic growth in Iraq for the period (1990-2019). It also aims to determine how monetary policy's mutual impact on economic growth is transmitted by measuring and analyzing causal relations between financial indicators and economic development in Iraq. Based on the standard approach based on a recent methodology for testing causality (Granger) provided by Toda-Yamamoto, which is based on the self-regression model (VAR). It allows us to test the study problem and reach the desired results. The research results were the absence of the causal relationship of the interest rate towards GDP due to the everyday use of the interest rate as a monetary policy instrument in stimulating the investment process, which does not affect output. On the other hand, the causal relationship between both the exchange rate and the broad cash supply towards production is due to the effectiveness of these monetary policy indicators in influencing GDP. The study also recommended activating the role of these monetary policy indicators to control inflation on the one hand and promote growth on the part of others.