The role of monetary and fiscal policy in reducing the impact of the problem of relative prices in increasing the general level of prices in the Iraqi economy for the period 2003-2010

Abstract

Since the beginning of the nineties of the twentieth century and when economies applied the approach of economic liberalization to move the economy from a centrally directed system to a free market economy, another reason for the high inflation rates emerged in the economic analysis represented in the effect of the relative prices of some essential commodities, which prompted many economies to set a goal It is essential for monetary and fiscal policy, which is the attempt to address the problem of relative prices, with the aim of bringing the inflation rate to low and stable levels, through activating the exchange rate and interest rate policy along with taxes, financial support, and investment allocation.

The Iraqi economy is one of the economies that suffer from the problem of inflation, as Iraq has faced since the beginning of the nineties decade of hyperinflation, and despite the Central Bank's followers of a deflationary monetary policy with the aim of reducing inflation rates, this policy faced several challenges that made the process of reduction and then stability Inflation rates are slow, and these challenges are represented by: supply bottlenecks in the real sector (supply shock), which mainly centered in the deficit of the fuel and energy supply sector and its negative repercussions on transportation costs, production and marketing costs, and then the emergence of the problem of relative prices, and the significant impact of aggregate demand, or spending. The aggregate effect on goods and services in the economy, which came as a reflection of the expansion of the phenomenon of current government expenditures at the expense of investment spending, and the excessive issuance of cash (cash shock) in previous decades due to wars and economic blockade, and in the face of the insufficiency of the production sectors to meet local demand, this created pressure on inflation rates. towards height.

In the face of the monetary and fiscal policy facing these obstacles, which reduced its effectiveness in reducing inflation rates, the problem of relative prices has emerged to become an important obstacle in achieving the goal of monetary and fiscal policy represented in reducing inflation rates and advancing the Iraqi economy, which requires monetary and fiscal policy "along with other economic policies." To activate the policy of exchange and interest rates in proportion and in coordination with the financial policies of "investment allocations, tax incentives and financial support" to reduce the impact of these obstacles and then advance the Iraqi economy.