Measuring the impact of oil price volatility on the money supply of the Iraqi economy using the threshold model for the period (2004-2023)
Abstract
The research examined how oil price fluctuations affect M2 money supply in Iraq throughout the period from 2004 to 2023 based on monthly statistical records. The research aimed to determine how oil price fluctuations impact monetary supply within nations which export oil such as Iraq. The research employed threshold regression modeling to analyze how this connection evolved through time while showing non-linear patterns. The Phillips-Perron test served our purpose to determine if the data maintained stationary properties. The research findings demonstrated that oil prices maintain stationary behavior in their original form and M2 data becomes stationary after performing its first difference. The threshold model identified three threshold points which established four distinct data segments. The data shows that M2 responds positively to oil price changes in both low and moderate economic environments. The effect becomes negative in high regime settings while the very high regime produces a non-significant weak effect. The model successfully passed all diagnostic tests which checked for autocorrelation and heteroskedasticity and the residual data appears free from major issues. The research findings demonstrate that oil price movements create different effects on money supply based on current monetary conditions. The development of monetary and fiscal policies by policymakers needs to take into account these economic factors which affect nations that heavily rely on oil production.
The research includes the following essential terms: oil prices and money supply and Iraq and threshold model and nonlinearity.
Downloads
References
Aasim, M. (2015). Global Implications of Lower Oil Prices. IMF Staff Discussion Note, p. 9.
Abdejamman, M. (2016). Previously Cited Source, pp. 345–346. (In Arabic)
Abdel Azim, H. (1986). Fiscal and Monetary Policies in Balance (1st ed.). Nahdet Misr Library, Cairo. (In Arabic)
Abdul Razzaq, A. (2005). Oil price shocks – The causal relationship with money supply: Some evidence from Algeria. North Africa Studies Journal, 2(10), 173–181. (In Arabic)
Alakkari, K., & Ali, B. (2025). Using Random Forest Algorithm to Improve Investment Decision Making in Damascus Stock Exchange. EDRAAK, 2025, 57-61.
Al-Bayati, T. F., & Samarah, M. R. (2013). Money, Banking, and Contemporary Economic Variables (1st ed.). Dar Wael Publishing, Amman. (In Arabic)
Al-Omari, B. K., & Ahmed, A. E. A. (2016). Impact of oil price fluctuations on Omani narrow money supply (M1), 1980–2016. International Journal of Social Science and Economics Invention. https://doi.org/10.23958/ijssei/vol05-i10/167
Altintas, H., & Yacouba, K. (2018). Asymmetric responses of stock prices to money supply and oil prices shocks in Turkey: New evidence from a nonlinear ARDL approach. International Journal of Economics and Financial Issues, 8(4), 45.
Bai, J., & Perron, P. (2003). Computation and analysis of multiple structural change models. Journal of Applied Econometrics, 18(1), 1–22. https://doi.org/10.1002/jae.659
Bajrami, R., Tafa, S., Gashi, A., & Hashani, M. (2025). Analysing the impact of money supply on economic growth: A panel regression approach for Western Balkan countries (2000–2023). Regional Science Policy & Practice, 17, 100159.
Balounejad Nouri, R., & Farhang, A. A. (2022). New Evidence of the Effect of Oil Revenues, Exchange Rates and Money Supply on CPI and PPI: Quantile ARDL Approach. Iranian Journal of Economic Studies, 11(1), 103-120.
Baumol, W. J., & Blinder, A. S. (2009). Macroeconomics: Principles and Policy (11th ed.). South-Western Cengage Learning.
Benk, S., & Gillman, M. (2023). Identifying money and inflation expectation shocks to real oil prices. Energy Economics, 126, 106878.
Boyes, W., & Melvin, M. (2011). Macroeconomics (8th ed.). South-Western Cengage Learning.
Case, K. E., Fair, R. C., & Oster, S. M. (2012). Principles of Economics (10th ed.). Pearson Education, Delhi.
Enders, W. (2014). Applied Econometric Time Series (4th ed.). John Wiley & Sons.
Hansen, B. E. (2000). Sample splitting and threshold estimation. Econometrica, 68(3), 575–603. https://doi.org/10.1111/1468-0262.00124
Hayek, F. A. (1976). Denationalization of Money. Institute of Economic Affairs, London.
Kanaan, A. (2012). Money, Banking, and Monetary Policy (1st ed.). Al-Manhal Al-Lubnani Publishing, Beirut. (In Arabic)
Khalil, S. (1982). Economics of Money and Banking: Volume II – Monetary and Fiscal Theories and Policies (1st ed.). Kazma Publishing, Kuwait. (In Arabic)
Mahdi, A. E. S. A. A. (2019). The impact of crude oil price changes on money supply (M2) in Oman (1990-2016). GSJ, 7(3), 97-104.
Measuring the impact of oil price shocks on selected indicators of fiscal discipline in Algeria (2003–2020). (2022). Journal of Administration and Economics, Karbala University, 11(44), 181. (In Arabic)
Okedigba, D. O., Akintola, A. A., Umaru, A., Mcdonald, Q. E., Inusa, E. M., Fashoro, B. O., Etudaiye, I. M., Joshua, R., & Osagu, F. N. (2024). Exploring Sub-Saharan Africa’s money supply-inflation nexus: A GARCH-MIDAS approach. Scientific African, 23, e02111.
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335
Salvato, S. (2009). The Quantity Theory of Money: History and Significance in Economic Thought. Economics 446 Paper, pp. 3–6.
Sharma, S., & Dahiya, M. (2023). Analysis of the effect of currency exchange rate, broad money (M3) and oil prices on inflation in India. International Journal of Economics and Financial Issues, 13(3), 158-168.
Skousen, M. (2007). The Big Three in Economics. M.E. Sharpe, Armonk, New York.
Snowdon, B., & Vane, H. R. (2005). Modern Macroeconomics. Edward Elgar, Cheltenham, UK.
Swaanberg, A. (2008). Macroeconomics (K. Al-Amiri, Trans.) (1st ed.). Dar Al-Farouq, Cairo. (In Arabic)
Vane, H. R., & Thompson, J. L. (1979). Monetarism: Theory, Evidence and Policy. Martin Robertson, Cowley Road.
Published
Deprecated: Return type of Carbon\Traits\Date::createFromTimestamp($timestamp, $tz = null) should either be compatible with DateTime::createFromTimestamp(int|float $timestamp): static, or the #[\ReturnTypeWillChange] attribute should be used to temporarily suppress the notice in /home/iqserver/journals/kjeas.uowasit.edu.iq/lib/pkp/lib/vendor/nesbot/carbon/src/Carbon/Traits/Timestamp.php on line 29
2026-07-09
