Analyzing and measuring the interrelationship between the exchange rate policy and public expenditure and its impact on economic growth in Iraq for the period (2004-2021) using the structural autoregressive vector model (SVAR)

Abstract

The primary goal at the macroeconomic level in the medium and long term for developing countries is to reach sustainable economic growth. Among the variables that are given importance in formulating the appropriate economic policy to reach that goal is to review the policies followed for the exchange rate of the local currency and the policy of public expenditure, This study seeks to try to evaluate the reciprocal relationship between the exchange rate policy and public expenditure and its impact on economic growth by measuring that effect for the period 2004-2021 in the Iraqi economy using the structural autoregressive vector (SVAR) model. The study concluded that the occurrence of a shock in the parallel exchange rate leads to a decrease in the gross domestic product in prices, but in the medium and long term, a negative effect will be generated, starting from the second year following the shock. This is due to the fact that the Iraqi economy is characterized by a high index of economic exposure to the outside world, which makes the economy exposed to the fluctuations of external variables, and thus highlights the role of the exchange rate in the Iraqi economy. As it shows the interdependence between the components of public spending and the main driver of the gross domestic product and the position of the current account, and this relationship illustrates the weak interdependence between the economic sectors in generating a real sector that produces goods and services.