ANALYZING THE INFLUENCE OF INFLATION ON ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM IRAQ

Abstract

The inflation as a phenomenon is a crucial economic problem in the world that has negative impact on any country economically and socially. Iraq experiences price increases as a result of the vulnerability of the productive sectors, failure to react to aggregate demand, some other elements such as shocks, conflicts and political and economic turmoil. This paper is an attempt to examine the impact of inflation on economic growth in Iraq for the period of 1990 – 2020, by employing ARDL bounds test approach to explore the long-run and short-run relationship between inflation, exchange rate, interest rate and GDP. The results show that there is a short run and significant relationship between economic growth and inflation in Iraq. The study concluded that inflation control requires achieving a proportional level of economic and price activities, where the ratio of money to income grows in a stable manner consistent with financial growth and macroeconomic stability. Accordingly, controlling inflation needs a mixture of fiscal and monetary policies. The findings shed some new insights for policymakers on dealing with inflation in Iraq.