Regime and the effect of monetary policy on the economy

Regime and the effect of monetary policy on the economy

Basman Kamil Jawad

University of – Furat – Awsat Karbala Technical Institute


Monetary policy is a crucial tool of the country to influence the overall economy by affecting economic variables such as interest rate, inflation and liquidity. However, any country’s monetary policy is governed, which is the type of exchange rate system used in that country. The International Monetary Fund generally categorizes countries into different exchange rate regimes. The main objective of this work is to explore the relationship between the exchange rate system and the impact of monetary policy on economic variables. This study focuses on four exchange rate systems commonly used by various countries: the traditional peg system, flotation, free float, and stable system. Four countries have been selected to study these systems: Jordan, New Zealand, the United States, and China. In addition, three economic variables have been selected as independent variables: the basic interest rate, inflation, and gross domestic product (GDP). Various central banks depend on the exponential basic interest rate to influence the interest rate in the market and then influence the economy. Two dependent variables have been chosen: inflation and gross domestic product. Inflation is considered an important economic variable in any country, and central banks mainly target this variable because it is related to the price rate, unemployment, and economic situation. Finally, the gross domestic product has been chosen because it is considered an important variable reflecting any country’s economy. In this study, the work relied on the time series analysis of these quarterly variables from 2004 to 2021, and two types of analysis were relied on. The first is the time series graph analysis, and the other is the statistical analysis. The study concluded that the basic interest rate affects the selected variables differently. From one country to another, the state of Jordan has the interest rate affecting the most, followed by New Zealand, China, and then the United States. The reason may be due to several factors, the most important of which is the nature of the economy, if it is advanced, emerging, or developing, and other factors.

Volume 13, Issue 2, Pages 41-58

DOI: 10.52113/6/2023-13-2/41-58


Categories: Uncategorized

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