The impact of some monetary policy variables on inflation

Abstract

The exchange rate policy is one of the monetary economic policies along with other economic policies, which the monetary authorities resort to in order to manage the country's economy and protect it from external and internal shocks. To significant economic risks, whether at the macro level, affecting the balance of payments or at the micro level, and causing inflation, the exchange rates of currencies are subject to continuous economic fluctuations, causing changes in their international economic transactions. Considering the exchange rate is determined by the interaction of money supply and demand, therefore, any increase in the money supply by the monetary authorities leads to a rise in the level of local prices and a decrease in the value of the local currency and leads to a rise in inflation. There is a direct relationship between money supply and foreign exchange rates, and any change that occurs in the money supply will lead to a change in the foreign exchange rate and a change in inflation. foreign exchange market, When the value of a country’s currency rises by 15% and the general level of prices in the other country is stable, domestic inflation will push individuals to increase their demand for foreign goods and services, which leads to a decrease in the exchange rate of the local currency toward foreigners. The objective of the study was set to test the impact of dust in the exchange rate and money supply on inflation in Iraq for the period 1991-2019, using the NARDL model.