Monetary policy of oil-exporting countries with informality: a DSGE analysis of Iraq
| Thesis title in Czech: | Měnové politika v zemi exportující ropu s šedou ekonomikou: analýza Iráku optikou DSGE modelu |
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| Thesis title in English: | Monetary policy of oil-exporting countries with informality: a DSGE analysis of Iraq |
| English key words: | DSGE, Monetary policy in Iraq, Informality in Iraq |
| Academic year of topic announcement: | 2022/2023 |
| Thesis type: | diploma thesis |
| Thesis language: | angličtina |
| Department: | Institute of Economic Studies (23-IES) |
| Supervisor: | doc. Mgr. Tomáš Holub, Ph.D. |
| Author: | hidden - assigned by the advisor |
| Date of registration: | 16.12.2022 |
| Date of assignment: | 27.04.2023 |
| Date and time of defence: | 15.09.2023 07:00 |
| Venue of defence: | Jinonice - U Kříže 8, Praha 5 |
| Date of electronic submission: | 01.08.2023 |
| Date of proceeded defence: | 15.09.2023 |
| Opponents: | prof. Ing. Oldřich Dědek, CSc. |
| Guidelines |
| In 2003, Iraq started its new era after the collapse of the previous regime. Although the law gives the Central Bank its independence from the planned system, the economy is still struggling with many challenges represented by the following. Firstly, the oil-dependent exporting country as the only source of government revenues, which constitutes 95 percent of exports and 32 percent of the GDP. Secondly, the existence of Informality represented by labor markets and the goods market, and finally, the impacts of Corruption in political level which affects the economy negatively. During this era, two negative shocks attacked the economy, the first one was in 2014 represented by OPEC decision to decrease the oil prices and accompanied with more government spending in its war against terrorism, the second shock was in 2020 as a Covid crisis represented by the decrease of international prices of oil.
The topic will study the monetary policy efficiency of Iraq, which uses inflation targeting with a fixed nominal exchange rate regime against the American dollar. The monetary policy uses the foreign revenues collected by the financial ministry from oil sales exports through the sale window of CBI to achieve exchange rate stability sales stability. In addition, the thesis will take into consideration the existence of informality in the Iraqi economy, the labor market, and the goods market as well. With these main features of the economy, the thesis will study the impact of informality and oil shocks on the economy and try to measure which factor has the most influence and find if other policies instead of the Consumer price Index (CPI), as the Production Price Index might be more efficient. Working hypotheses: Hypothesis #1: monetary policy is an efficient policy with its transmission channels on macroeconomic variables in the short-term with the reality of weak fiscal policy, existence of informality, and oil-dependent economy. Thus, informality does not have the most significant negative influence in comparison to oil-dependence shocks and must be solved as long-term aim by the improvement steps of government and fiscal ministry. Hypothesis #2: The monetary policy is inefficient with its policies, and it is affected to a large extent negatively by informality, thus using aggressive policies to absorb the informality effects, beside the improvements needed in fiscal policy and industrial sectors. Hypothesis #3: Monetary policy is affected by both oil-dependence shocks and informality, and the improvement must be made by monetary and fiscal policies in parallel. Methodology: The methodology that will be used is a quantitative method using quarterly data series applied to the Dynamic Stochastic General Equilibrium model. For a small open economy, with informality and an oil sector, the model will be calibrated or/and by Bayesian estimation, in addition to getting the impulse responses results by using Dynare software. |
| References |
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| Preliminary scope of work |
| Dynamic Stochastic General Equilibrium, Monetary Policy, Informal economy, Oil economy |
| Preliminary scope of work in English |
| Table of Contents……………………………………………………………………………………………………..1
1 – Introduction…………………………………………………………………………………………………………4 2 - Literature review …………………………………………………………………………………………………6 3 - An overview of the Iraqi economy after 2003, the Central Bank of Iraq, and the informal economy in Iraq …………………………………………………………………………………………9 3.1 - An overview of the Iraqi economy after 2003…………………………………….9 3.2 - Central Bank of Iraq …………………………………………………………………………11 3.3 - Informal economy in Iraq ……………………………………………………………….13 3.4 - An overview Dynamic Stochastic General Equilibrium models…………14 4 – The theoretical model……………………………………………………………………………………...16 4.1 – Model outline……………………………………………………………………………….16 4.2 – Household…………………………………………………………………………………….17 4.3 – The household aggregate basket……………………………………. …..……….20 4.4 - Aggregate labor…………………………………………………………………….….….22 4.5 – Rest of the world oil price, Real exchange rate, inflation, international risk sharing, and Uncovered interest rate parity (UIP)…………………………………………………23 4.5.1 – Real Exchange rate…………………………………………….….……24 4.5.2 - CPI and domestic inflation……………………………………………25 4.5.3 - International Risk sharing…………………………………………….26 4.5.4 - Uncovered Interest Parity (UIP)……………………………………27 4.6 - Firms……………………………………………………………………………….……….….29 4.6.1- Oil producing firms……………………………………………….…….29. 4.6.2 - Formal sector………………………………….………………….…….30 4.6.3 - informal sector firms……………………….………………….…...33 4.7- Government………………………………………………………………………...…….….…34 4.7.1 - Monetary policy and the Exchange regime in Iraq……….. 34. 4.7.2 - Fiscal policy………………………………………………………….36 4.8 - General Equilibrium………………………………………………………….…….…37 5 – Practical results………………………………………………………………………………………….…….38 5.1 - Calibration and simulation……………………………………………………38 5.2 – The main results of the model simulation……………………………48 6 – Conclusion……………………………………………………………………………………………….…….48 7 - Log-linearized model…………………………………………….……………………………………….50 8 – References ………………………………………….…………………………………………….………….57 Appendix…………………………………………………………………………………………………………….62 |