Fiscal dominance: Theoretical entrance to the causes and effects


Fiscal dominance means that the government plans to spend away from any coordination with the monetary authority. So put the annual budget does not care how much is the amount of the budget deficit, where is the financing of deficit by the central bank or the financial market, and often this occurs if the central bank does not independent of the government So the government is not interested in the growth the budget deficit as long as the central bank finance, this caused the devaluation of local currency against foreign currencies. The study aims to clarify and analyzing the concept of fiscal dominance and it is impact on the effectiveness of monetary policy in Iraq. Results of the study confirmed that the effects of this phenomenon, high rates of inflation and the decline in the effectiveness of monetary policy. Such effect increases the degree of risk in domestic and foreign investment.