Estimating the output gap and inflation gap in the Iraqi economy And its impact on interest rates for the period 1989-2018

Abstract

The research aims to estimate the output and inflation gaps and measure their impact on interest rates by estimating the expected output and its effect on the output and inflation gap and its impact on the inflation gap by applying to the Iraqi economy for the period (1989-2018). Using the Hodrick-Prescott filter method to find all of the expected output and the target inflation. And clarify the changes taking place in both the inflation gap and the output gap during the study period, and measure their effects on interest rates by relying on the Autoregressive-Distributed Lag (ARDL). To reach the form of the relationship between the variables included in the study model. It was reached during the study that both the output gap and the inflation gap have gone through multiple stages according to the monetary policies followed. And that monetary authorities in Iraq rely on targeting the inflation gap more than targeting the output gap, and it was found that there is a long-term balance relationship between the nominal interest rate as a dependent variable on the one hand and the resulting output and inflation as independent variables on the other hand.