Forecasting the Velocity of Money Circulation in Iraq until 2030, Using ARIMA as a Model

Authors

  • Sameer Fakhri Neema Dean of Administration and Economics College, nawroz university, Duhok, kurdistan-iraq
  • Chnin M. Salih College of Economics and Administrative, University of Duhok, Duhok, Kurdistan-Iraq

DOI:

https://doi.org/10.25007/ajnu.v10n1a710

Keywords:

velocity of money, oil-fiscal dominance on a monetary basis, sterilization policy, return of the cash issue, ARIMA method for Forecasting.

Abstract

Variations in the velocity of money circulation are of considerable significance to economic policymakers and decision makers, since these variations draw the appropriate income levels achieved. However, practical experiments confirm that the relationship between cash balances and spending flow or total payments can be unstable over time because spending flow may vary significantly while money supply remains unchanged, or the opposite may happen.

Thus, this study aims at forecasting the path of the velocity of money circulation in the Iraqi economy until 2030 by using ARIMA model. The study has reached a set of conclusions. Most importantly, the instability of the velocity of money circulation is ascribed to the fact that the changes in government spending due to changes in oil revenues have made the money supply an internal variable through oil-fiscal dominance on a monetary basis. This has made the monetary authorities unable to define the course of changes in the velocity of money circulation throughout the duration of the research. The study has also made some recommendations. Most importantly, the monetary authorities need to monitor the sterilization policy in the current account surplus and track the return of the cash issue in the current account deficit, to accurately determine the trajectory of changes in the velocity of money circulation and to minimize the financial policy pressure on the central bank, which may have undesirable results in terms of shaping the monetary policy. In addition, the stability of the velocity of money circulation is crucial when evaluate the effectiveness of monetary policy tools, because that goal is key to establishing the causal relationship between the financial depth and Gross Domestic Product (GDP).

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References

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Published

2021-03-05

How to Cite

Neema, S. F., & Salih, C. M. (2021). Forecasting the Velocity of Money Circulation in Iraq until 2030, Using ARIMA as a Model. Academic Journal of Nawroz University, 10(1), 80–91. https://doi.org/10.25007/ajnu.v10n1a710

Issue

Vol. 10 No. 1 (2021)

Section

Articles

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