The effect of changing the exchange rate on some economic variables by using the autoregressive distributed Lag (ARDL) in Iraq

Abstract

The issue of the exchange rate has emerged as one of the most important problems facing countries in drawing the parameters of their foreign exchange, as dealing in the foreign currency market has become one of the most dangerous transactions, and studies have shown the existence of several mutual effects between exchange rate fluctuations and macroeconomic variables. The study focuses on analyzing the impact of fluctuations The exchange rate on macroeconomic variables. This comes in the wake of the fundamental changes in the macroeconomic indicators in Iraq, which included inflation and oil prices, which had a major impact on the value of the Iraqi dinar against the US dollar. The Autoregressive Distributed Lag (ARDL) was used to analyze time-series data from 1990-2017. This model can distinguish between dependent and explanatory variables and eliminate the problems that may arise due to the presence of autocorrelation and internal growth. The ARDEL model can also estimate the short-term and long-term relationship, simultaneously. The results showed that there is a long-term relationship between the exchange rate with inflation, GDP, expanded the money supply, and foreign reserves. This is consistent with the reality of economic theory, but in the short term, there is a relationship between the exchange rate and inflation. The reason is that there is no relationship between the price Exchange and other variables in the short term due to the inability to demonstrate the impact of these variables in a relatively short period, from which we conclude that reducing volatility in macroeconomic variables due to the stability the exchange rate in the Iraqi economy to help decision-makers draw correct economic policies.