Measuring the impact of quantitative easing policy on financial stability in Iraq

Abstract

The importance of the study is evident through its discussion of the relationship between quantitative easing and financial stability indicators in Iraq. Quantitative easing policies have received great attention from international and local economic institutions, especially the Central Bank of Iraq; because these policies are likely to produce positive or negative effects on financial stability indicators. The research aims to reveal the nature of the effects between quantitative easing policies represented by (foreign currency cash auction, issued currency) on financial stability indicators (surplus or deficit in the general budget, ratio of loans to deposits, ratio of domestic public debt to real GDP, inflation, domestic public debt to foreign reserves) for the monthly period from January 2016 to November 2024, as the number of observations reached 107 observations, which is sufficient to apply modern econometric methods, and the method of dynamic least squares was employed, as well as the Johansen test for joint integration. The results showed the existence of a long-term balance between quantitative easing policies and financial stability indicators during the research period. The study also proved the existence of positive effects of quantitative easing policies on the general budget surplus, the general index of the financial market, and the ratio of loans to deposits. The results also showed the existence of undesirable negative effects of quantitative easing policies because they contribute to increasing the ratio of public debt to real GDP, inflation rates, and the ratio of domestic debt to foreign reserves.