Measuring and analyzing the impact of monetary aggregates on the level of aggregate demand in Iraq

Abstract

Given the peculiarities of the rentier Iraqi economy (IE) structure, which refers to the weakening of the production machinery, the problem with the IE is not just supply, but also demand. In order to comprehend the direct relationship between them and how it affects the activity, the research seeks to quantitatively link the relationship between monetary aggregates (MA) and Aggregate Demand (AD). From 2004 through 2020, the data were collected to measure the study's variables. The study discovered that MA have a significant impact on AD because there is a direct relationship between them in the short and long terms. This relationship shows that MA are directly related to that demand because it rises when they do and falls when they fall. The quantitative approach was used to arrive at this result since there existed an equilibrium relationship between the long- and short-term variables in terms of the parameter of the long-term variable. In addition, public spending has a direct role in the increase in the volume of MA and in a direct relationship, which contributed to the increase in the volume of AD in light of the weak flexibility of the production system, which was reflected in the increase in imports. While the study advises working to strengthen economic sectors, particularly those that have extensive connections to other sectors, and increase their share of the gross domestic product. Particularly the tourist industry, with its lucrative financial returns and plentiful work opportunities that help raise people's standards of life and lessen the unemployment issue. Compared to other industries, exploiting it doesn't need much effort. Additionally, efforts should be made to expand the private sector so that it can draw in the rising level of national AD and provide the required support, such as funding or energy supplies. Additionally, local products are safeguarded by the application of customs taxes. The research's novelty is demonstrated by the use of the ARDL model to quantify and standardize the relationship between MA and AD.