The analysis of relationship between inflation and foreign exchange rates in the Northern region of Iraq for the period (2008 - 2016)

This study purpose is to examine the relationship between the inflation and foreign exchange rates of the major currencies namely (US dollar, Euro, Turkish lira) money supply and gross domestic product (GDP) in the NRI during the period (2008-2016). It is notable that the region suffers from the high inflation rate and fluctuations in foreign exchange rates after the fall of the former Iraqi regime in 2003. The study results indicated that there are long-run relationships between inflation rate and foreign exchange rates, money supply and gross domestic product (GDP) in the region during the same period because of the result of a vector error correction model parameter positive and significant. The study also showed that there are long-run relationships between the exchange rate of the US dollar, against the dinar to the inflation in the region during the period indicated. While the study found a long-run relationship between the exchange rate of the US dollar against the Iraqi dinar and inflation in the NRI during the period (2008-2016). Besides, there is an adverse long-run relationship between the exchange rate of the Euro against the dinar and inflation in the NRI during the period (2008-2016). While the study also found an adverse long-run relationship between the exchange rate of the Turkish lira against the dinar and inflation in the NRI during the period (2008-2016). However, there is an adverse long-run relationship between GDP and inflation during the period (2008-2016). This relationship is not statistically significant according to the t-test, and it does not differ from zero. In addition, the study realizes an adverse long-run relationship between money supply and inflation during the period (2008-2016). This relationship is not statistically significant according to the t-test, and it does not differ from zero. The relationship between the money supply and the inflation rate is not significant because the NRG during the period 2014 till now in money supply depends on revenues of oil exported independently which means it does not depend on the money supply in the Iraqi economy.