The Impact of Certain Macroeconomic Variables on the Exchange Rate – A Comparative Study between Iraq and Nigeria for the Period (2006-2022)

Abstract

      This research aims to analyze the relationship between the exchange rate and certain macroeconomic variables in Iraq, in a comparative study between Iraq and Nigeria for the period (2006-2022), with a focus on the impact of macroeconomic variables on the exchange rate when monetary authorities in both Iraq and Nigeria devalue their currencies during the period from 2006 to 2022. Four key variables were selected to assess their impact: public debt, the general budget, the consumer price index, and gross domestic product (GDP). The study aims to determine whether these effects were positive or negative, using modern econometric methods, with a particular focus on the ARDL methodology, which is considered appropriate for measuring this impact. The research problem focuses on the economic crises these countries face, characterized by increasing public expenditures on one hand and declining public revenues on the other, leading to budget deficits. Moreover, the primary resource that funds their budgets is oil. Consequently, these countries must strive to diversify their income sources, especially given their large agricultural areas and geographical wealth, which can help them diversify their revenue streams and mitigate the volatility of global oil prices. To achieve the study's objective, several conclusions were reached, the most important of which is that devaluing the national currency as a policy rather than an exchange rate regime will have more negative than positive effects. The transition from a fixed multiple-rate system to a managed floating system will lead to another change in a short period, ultimately resulting in the full floating of the local currency. This creates disruptions in local markets and immense pressure on vulnerable segments of society. The primary cause of rising inflation rates is the devaluation of the currency, pursued by governments for various reasons. As a result, the price of exchange rate stability is the disruption of all markets.