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ISSN : 1598-7248 (Print)
ISSN : 2234-6473 (Online)
Industrial Engineering & Management Systems Vol.19 No.4 pp.932-948
DOI : https://doi.org/10.7232/iems.2020.19.4.932

# Uses of the Revised Exchange Rate to Maintain Fair Value of Assets under Covid-19 Crisis

Mohammed Hussein Ali*, Hayder Basim Kareem, Jasim Idan Barrak
Department of Accounting, College of Pharmacy, University of Karbala, Iraq
Department of Accounting, Technical Institute- Kut, Middle Technical University, Iraq
Department of Accounting, College of Administration ang Economic, University of Karbala, Iraq
*Corresponding Author, E-mail: Muhammed.hussain@uokerbala.edu.iq
October 14, 2020 November 30, 2020 December 4, 2020

## ABSTRACT

The research aims to identify the effect of using the modified exchange rate in preserving the fair value of the assets, which are the most important economic variables in the Iraqi economy, which are the growth rate of the amount of money in circulation, the value of Iraq’s crude oil exports, the rate of inflation, the rate of growth of the gross domestic product, which expresses the rate of economic growth and the value of spending Government and the value of foreign direct investment in the presence of the COVID-19 crisis. The research found that the effect of the adjusted exchange rate value on both the rate of growth in the amount of money in circulation in Iraq and the growth rate of GDP in Iraq during the period (2004-2018) was not significant, while the significant effect of the value of the adjusted exchange rate on both the value of Iraqi exports Of crude oil in Iraq, the rate of inflation, the value of government spending, the value of foreign investment during the period (2004-2018). The effect of the revised exchange rate was evident in maintaining the fair value of assets in general and in light of the COVID-19 crisis in particular. The research recommended the necessity for the Central Bank of Iraq to use more effective monetary policies that would help increase the impact on the rate of growth of the amount of money in circulation as well as the rate of growth of gross domestic product, the need to work to diversify sources of income in the Iraqi economy and encourage development in all economic sectors and reduce dependence on oil as a main source For income in Iraq, work to develop economic and financial policies that encourage companies and individuals to invest in all non-oil economic sectors, the need to develop monetary policies that can confront emergency situations that may occur, activate the role of crisis management and increase their levels of efficiency.

## 1. INTRODUCTION

The developing countries seek to overcome the problem of the persistent deficit in the balance of payments and improve the foreign exchange reserves through a set of policies that achieve economic stability, which are represented in the monetary and financial policies, and these policies are used through the economic reform programs applied by the International Monetary Fund and the World Bank in many From developing countries (Lane and Milesi-Ferretti, 2018;Hong and Andersen, 2011).

The exchange rate policy plays an important role in achieving the objectives of these programs by achieving coherence and interaction between this policy and the monetary and financial policies in the country (Ingham, 2013;Sharaf et al., 2020a, 2020b).

When using the exchange rate policy as a tool of monetary policy, it is necessary to ensure the effectiveness of this policy upon implementation by identifying the effects that this policy can have on the macroeconomic variables that are related to the goals to be achieved, which is to work to achieve economic stability within The state, and work to achieve a balance in the balance of payments, raise the rate of economic growth and increase the ability to face economic crises.

The effectiveness of the exchange rate policy is the extent to which the impact of this policy is transmitted to the economic variables related to the goals to be achieved through the use of this policy so that it is designed and implemented from the reality of this link (Claessens and Kodres, 2014). The spread of the Coronavirus around the world has caused the cessation of many economic, commercial and industrial activities and the existence of many restrictions on travel between countries of the world, which reached a complete halt in life in a number of countries such as Italy, Spain, France, China, Saudi Arabia and Kuwait, as well as a large number of American states (Gibson et al., 2012).

This study is showing how all countries of the world are striving to confront this virus and limit its spread by using all means and methods that help in this, including sitting in homes and not moving outside except for the most urgent necessity, which has led to many countries being completely paralyzed and all factories and shops stopping and many indicators falling Stock market in all countries of the world.

### 1.1 Problem Statement

Many developing countries, which implemented economic reform programs and stabilized the currency exchange rate during the nineties of the last century, were able to achieve a reasonable measure of economic stability and were able to reduce inflation rates, reduce the deficit in the general budget, and increase foreign exchange reserves.

However, the policy of fixing the currency rate had negative effects on the national product and led to a decrease in the rate of growth in real output. Liberalization of foreign trade, which helped increase the rates of growth in the real output of these countries.

The exchange rate policy is of great importance to the economies of countries due to its impact on the macroeconomic variables in the countries and on the volume of foreign trade, thus influencing the status of the balance of payments, and therefore the exchange rate is used as a policy to influence those variables, which are considered one of the means through which economic activity in the country is managed (Frankel and Saravelos, 2012)

The importance of the exchange rate policy lies in its ability to facilitate the achievement of economic goals in the country, as the exchange rate policy affects all sectors of the national economy, in addition to playing an important role in determining monetary policy, as well as determining the economic policy followed in dealing with the outside world and linking Between the local economy and the global economy by dealing in the market for goods and services using a specific currency that the state uses with its counterpart from other countries (Berkmen et al., 2012)

The Corona virus has greatly affected all stock exchanges and stock markets around the world, and all financial indicators, especially the Dow Jones and Nikkei Index, witnessed their biggest decline in more than forty years.

Many countries have reduced interest rates with the aim of encouraging individuals to spend, try to control markets and face the economic problems that have begun to appear as a result of the spread of the Corona virus, such as unemployment and low production (Chudik and Fratzscher, 2011).

The spread of the Corona virus has led to the cessation of many industries in all countries of the world and to a sharp decline in demand for cars, equipment and machinery, as well as economic growth began to decline in all countries of the world, and there are expectations of the largest decline in global growth since 2009, where expectations indicate a growth of 2.4 Only a decrease of 0.5% from 2019, and the growth rate could decline to 1.5% in the event of an outbreak and spread of the epidemic, factory closures and workers staying at home for longer periods than expected (Humphrey et al., 2009) .

The spread of the Corona virus around the world has caused the largest decrease in oil demand ever, which led to the OPEC organization being subjected to many pressures to reduce the quantities produced of oil to maintain the price level and limit the severe collapse in oil prices that is occurring at the present time Which led to oil prices reaching the lowest price witnessed by the oil market since the drop in oil prices in 2014. During the last period, OPEC reduced the quantities of oil produced by 2 million barrels / day, with oil prices dropping to less than 30 dollars a barrel (Mitton, 2002).

The problem of the research is that it seeks to identify the effect of using the modified exchange rate in preserving the fair value of the assets, which are the most important economic variables in the Iraqi economy, which are the growth rate of the amount of money in circulation, the value of Iraq’s crude oil exports, the rate of inflation and the rate of growth of the gross domestic product expressed in The rate of economic growth, the value of government spending and the value of foreign direct investment in the presence of the COVID-19 crisis

### 1.2 The Importance of Research

The importance of the study is that it seeks to identify the effect of using the adjusted exchange rate on preserving the value of assets in light of the COVID-19 crisis, which is one of the topics that have not been discussed significantly in scientific studies and research, which makes it one of the first studies and researches that dealt with this topic and represents an addition to The scientific economic library and contributes to opening the way for researchers and scholars to conduct studies and research related to this topic.

### 1.3 Research Objectives

• 1. Study the impact of using the revised exchange rate on preserving the value of assets in light of the COVID-19 crisis

• 2. Recognizing the development of indicators of the most important economic variables in Iraq during the period (2004-2018)

• 3. Knowing the standard relationships between the revised exchange rate and the most important economic variables in Iraq during the period (2004-2018)

• 4. Reaching recommendations and proposals that contribute to achieving the most effective use of the revised excange rate.

## 2. RESEARCH METHODOLOGY

In order to achieve the objectives of the study, the research will assume a set of hypotheses, namely:

• The first hypothesis: There is a statistically significant effect of the adjusted exchange rate on the rate of growth of the amount of money in circulation in Iraq during the period (2004-2018)

• The second hypothesis: There is a statistically significant effect of the revised exchange rate on the value of Iraq’s crude oil exports during the period (2004-2018).

• The third hypothesis: There is a statistically significant effect of the adjusted exchange rate on the inflation rate in Iraq during the period (2004-2018).

• The fourth hypothesis: There is a statistically significant effect of the adjusted exchange rate on the rate of GDP growth in Iraq during the period (2004-2018).

• The fifth hypothesis: There is a statistically significant effect of the revised exchange rate on the value of government spending in Iraq during the period (2004-2018).

• The sixth hypothesis: There is a statistically significant effect of the adjusted exchange rate on the value of foreign direct investment in Iraq during the period (2004-2018).

• Fifth: Research methodology The research will use the descriptive approach to describe the phenomenon of the study and the standard analytical method for analyzing the research data through the use of the E-views program to arrive at results and recommendations that can be used.

### 2.1 Data Sources

The study will use the data that will be obtained through the reports and bulletins issued by the Central Bank of Iraq, the Central Statistical Organization in Iraq, the World Bank and OPEC during the study period (2004- 2018).

The limits of the study

Objective limits: The study aims to identify the impact of using the revised exchange rate on maintaining the fair value of assets in light of the COVID-19 crisis

• Spatial boundaries: Iraq

• Time limits: Duration (2004-2018)

### 2.2 Theoretical Framework

#### 2.2.1 Definition of Exchange Rate

It is the unit price of foreign currency in units of local currency, where it is defined as the number of units of local currency that can be exchanged to buy one currency of foreign currency.

It is the unit price of the local currency in units of foreign currency, where it is defined as the number of units of foreign currency that can be exchanged to buy one currency of the local currency.

#### 2.2.2 Foreign Exchange Market

It is the market in which the exchange rate is determined and in which the convergence of foreign exchange supply is a demand for foreign currency, and foreign exchange demand is a supply of national currencies (Kumar and Anand, 2013)

• Fixed Exchange Rates System

Under these systems, the exchange rate of the currency is fixed to:

One currency: It is characterized by certain characteristics such as strength and stability, and in this framework the economies work to fix their currencies to that currency without making any change.

A basket of currencies: The currencies are usually chosen from the currencies of the main trading partners

Within certain margins: Whether the fixation is attached to a single currency or a basket of currencies and here the permissible volatility range is determined.

• Flexible Exchange Rate System

It means leaving the exchange rate to be determined according to the forces of supply and demand without interference from the monetary authorities in the country, that is, to find a equilibrium price for the exchange rate of different currencies, which is currently called (the floating currency system). The demand for the local currency in the global monetary market, and thus its exchange rate decreases.

Floating exchange rates is a procedure used by the monetary authorities in periods of instability, such as crises and wars, or it may be a deliberate and deliberate policy.

## 3. PREVIOUS STUDIES

Kumar and Anand (2013) entitled The role of monetary policy in achieving monetary stability in the Iraqi economy for the period (2003-2009), which aimed to identify the role of monetary policy tools in achieving stability and economic growth, especially after the multiplicity of these tools and the creation of modern monetary tools that increased the impact of monetary policy On economic activity, especially after the transformation of the economic system in Iraq since (2003) towards a market economy and reliance on the forces of supply and demand in managing the economy. And legislative, by granting the Central Bank the independence in making decisions in line with the objectives of the general economic policy of the country, in addition to relying on indirect monetary tools and updating direct tools under the new stage.

The study indicated that the Iraqi monetary policy during the period 2003-2009 achieved relative success by increasing the real values of the Iraqi dinar against the US dollar by 39%, and this is mainly due to the intervention of the Central Bank of Iraq by offering large quantities of foreign exchange through the currency auction. And a shift in the role of the Central Bank of Iraq from a specific role for commercial banks’ policy of lending, deposits and interest rates to a role of monitoring lending movements, deposits and interest rates. Legislating the Banking Law No. 94 of 2004, despite this, monetary policy in Iraq could not curb inflation until 2006, when the inflation rate reached nearly 53%, but the measures that the monetary authorities followed at the end of 2006 led to the inflation rate reaching About 2.8% in 2008, which indicates the success of the adopted monetary policy in containing the inflationary phenomenon through the use of operational tools (interest rate, exchange rate) in achieving the goal Final gf of monetary authority and rein in inflation.

The study recommended the necessity of concerting macroeconomic policy efforts alongside monetary policy in order to introduce sectoral economic reforms in the industrial, agricultural, services, extractive and transformative industries through a comprehensive economic plan. The need for monetary policy to maintain the exchange rate of the Iraqi dinar high against foreign currencies. By selling currency auctions, the fact that the stability of the exchange rate is one of the important foundations for attracting foreign investments and driving growth and economic development.

Several studies entitled that the policy of exchange rate and economic stability, which aimed to identify the exchange rate policy and its role in achieving economic stability, and the importance of the role that the exchange rate policy plays in promoting the process of economic growth, as well as working to achieve the desired economic stability in developing countries in general and Egypt In particular, the study found that the exchange rate policy has a clear role in promoting the process of economic growth in developing countries in general and in Egypt in particular, as well as working to achieve economic stability in the country by working to activate the performance and ability of this policy to influence economic variables. In countries, economic policy makers in countries must ensure and work on ensuring the effectiveness of this policy under favorable and unfavorable conditions in the country until this policy is achieved for its role in promoting the process of economic growth, as well as working to achieve economic stability in countries.

In a satisfactory study (2015) entitled the role of the Bank of Algeria in managing the exchange rate policy in light of the managed float during the period (2000-2013), which aimed to identify the role of the Bank of Algeria in achieving the objectives of managing the managed exchange system, especially the stability of the exchange rate at the equilibrium level and the cautious management of reserves The exchange and regulation of the exchange control process. The study showed that the Central Bank of Algeria has carried out various reforms linked to economic reforms within the framework of reforming the banking system, accompanied by reforms in economic policies, including an exchange rate policy. Since independence, Algeria has been dependent on fixation and then moved towards adopting the exchange system. Managed float in the context of economic and exchange reforms in the 1990s.

The study also indicated that after the Algerian dinar float, the Central Bank of Algeria has a broader task in managing the exchange rate policy, in order to achieve the established objectives, so in light of external shocks from external and internal stability in the medium and long term, which led to the interventions of the Bank of Algeria, which were not limited. On the exchange market, a study showed that the flexible management of the exchange rate by the Bank of Algeria has proven effective in achieving external financial stability.

In the study of (Mitton, 2002) entitled Monetary Policy and its Effects on Stability and Economic Growth in Iraq during the period 2003-2014, which aimed to identify the laws and legislations related to monetary policy that were applied in Iraq after the American invasion in 2003. Iraq in 2003, new laws and legislation were issued to the Central Bank of Iraq, including Law No. 56 of 2004, granting it the independence to take appropriate decisions without interference from any governmental authority or organization, as the Central Bank is the government’s representative and financial advisor in resolving financial issues with the World Bank and the International Monetary Fund. And international organizations. The monetary policy was able by achieving its independence and working to reduce the inflation rate and stabilize the exchange rate of the Iraqi dinar, and the monetary policy during this period introduced new tools that had not been applied before that in Iraq, the most important of which is the foreign currency auction and the bank’s price. The Central Bank also gave commercial banks freedom Determining the interest rate in lending between them, in addition to increasing the number of commercial banks operating in Iraq.

## 4. RESULTS AND DISCUSSION

The research aims to identify the effect of using the modified exchange rate in maintaining the fair value of assets in light of the CPVID-19 crisis by studying the effect of the adjusted exchange rate on the growth rate of the monetary mass, the rate of inflation, the rate of growth of GDP, the value of government spending and foreign direct investment in Iraq during the period 2004-2018. the development of the exchange rate of the Iraqi dinar, the growth rate of the monetary mass, the inflation rate, the growth rate of the domestic product, the value of government spending and foreign direct investment in Iraq during the period 2004-2018

• •The value of the revised exchange rate in Iraq during the period (2004-2018):

From studying the data in Table 1 it was found that the value of the revised exchange rate in Iraq ranged between two limits, the lowest of which was about 1166 Iraqi dinars / dollar in 2013 and 2014, and a maximum of about 1472 Iraqi dinars / dollar in 2005, and the annual average value During the study period, about 1238.07 Iraqi dinars / dollar, at an increase rate of 68.5% during the study period.

• •The growth rate of the monetary supply in Iraq during the period (2004-2018):

From studying the data in Table 1, it becomes clear that the growth rate of the monetary mass in Iraq during the period (2004-2018) amounted to 8.74% as a minimum in 2014, and it reached a maximum of 17.99% in 2012 with an annual average of 13.31% during the study period. The increase is 25.1% during the study period.

• •The value of Iraq’s exports of crude oil during the period (2004-2018):

From studying the data contained in Table 1, it becomes clear that the value of Iraq’s exports of crude oil during the period (2004-2018) reached a minimum of $17.75 billion in 2004, and reached a maximum of$ 94.26 billion in 2012, with an annual average of $51.15 billion during the period. The study the rate of increase was 38.4% during the study period. • •The inflation rate in Iraq during the period (2004- 2018): From studying the data in Table 1, it becomes clear that the inflation rate in Iraq during the period (2004-2018) reached -10.07% as a minimum in 2007, and it reached 53.23% as a maximum in 2006, with an average of 9.87% during the study period. 5.3% during the study period. • •The rate of GDP growth in Iraq during the period (2004-2018): From studying the data in Table 1, it becomes clear that the rate of GDP growth in Iraq during the period (2004-2018) reached -2.49% as a minimum in 2017, and reached 54.16% as a maximum in 2004, with an average of 8.84% during the study period. The annual increase is 12.3% during the study period. • •The value of government spending in Iraq during the period (2004-2018): From studying the data contained in Table 1, it becomes clear that the value of government spending in Iraq during the period (2004-2018) reached a minimum of$ 29 billion in 2004, and reached a maximum of $226.2 billion in 2013, with an average of$ 130.97 billion during the study period. The rate of increase is 48.6% during the study period.

• •The value of foreign investment in Iraq during the period (2004-2018):

From studying the data in Table 1, it becomes clear that the value of foreign direct investment in Iraq during the period (2004-2018) amounted to 0.09 billion dollars as a minimum in 2004, and reached 5.53 billion dollars as a maximum in 2017 with an average of 2.63 billion dollars during the study period The rate of increase was 10.5% during the study period.

The standard model for the relationship between the adjusted exchange rate of the Iraqi dinar, the growth rate of the monetary mass, the value of Iraq’s crude oil exports, the rate of inflation, the growth rate of GDP, the value of government spending and foreign direct investment in Iraq during the period 2004-2018

In order to study and analyze the Relationship between the adjusted exchange rate of the Iraqi dinar, the rate of growth of the monetary mass, the value of Iraqi’s crude oil exports, the rate of inflation, the rate of growth of GDP, the value of government spending and foreign direct investment in Iraq during the period 2004-2018, a number of standard tests were used, where the test was used. Dickie-Fuller, the developer and cointegration test, to test the relationship between variables and test the number of time lag periods. Also, an error correction vector model was used to find out the type of relationship between variables in the long and short term by using Eviews program.

### 4.1 The Relationship between the Value of the Revised Exchange Rate of the Iraqi Dinar and the Growth Rate of the Monetary Mass

#### 4.1.1 Unit Root Test

To measure the stability of the model variables, the developed Dickie-Fuller test (ADF) was used and it was found from Table 2 that both the adjusted exchange rate value series (X) and the monetary mass growth rate series (1Y) were unstable at their level and stability occurred after taking the first difference. The two strings become complementary of the first degree, and because the two strings are complementary at the same degree, the joint integration of RDL is used to perform the test of the common complementarity between them.

#### 4.1.2 Cointegration Test

When performing the cointegration test, we find that there is a common complementarity between the two strings at 0.01 level of significance

#### 4.1.3 Choose the Number of Time Slowdowns

It can be seen from Table 4 that the optimum number of periods of time slowdown is 4 time periods for both the dependent variable and the independent variable.

Error Correction Vector Model for Long-Term and Short-Term Relationship:

In order to determine the value of the relationship parameters in the long and short term, it is required to estimate the error correction vectors, and it is evident from Table 5 that the error limit correction factor reached its value of 5.304, which is significant at the level of 0.01 significance, meaning that there is a correction from the short term to the long term at a speed of 5.304 while the equation indicates In the long run, there is an effect of the correction in the long run because X is significant at 0.01 level of significance

### 4.2 The Relationship between the Value of the Revised Exchange Rate of the Iraqi Dinar and the Value of Iraq’s Crude Oil Exports

#### 4.2.1 Unit Root Test

To measure the stability of the model variables, the developed Dickie-Fuller test (ADF) was used. Table 6 showed the instability of both the value chain of the adjusted exchange rate (X) and the value chain of Iraq’s crude oil exports (2Y) at their level and the stability occurred after taking the difference. The first is thus the two strings become complementary of the first degree, and because the two strings are complementary at the same degree, the joint integration of ARDL is used to perform the test of the common integration between them.

#### 4.2.2 Cointegration Test

When performing the cointegration test, we find that there is no cognitive integration between the two series at 0.05 significance level

#### 4.2.3 Choose the number of time slowdowns

It can be seen from Table 7 that the optimum number of periods of time slowdown is 4 time periods for both the dependent variable and the independent variable.

Error Correction Vector Model for Long-Term and Short-Term Relationship:

In order to determine the value of the relationship parameters in the long and short term, it is necessary to estimate the error correction vectors, and it becomes clear from Table 8 that the error term correction factor is not significant at a significant level of 0.05, meaning that there is no correction from the short term to the long term, while the long-term equation indicates that it is not There is an effect of the correction in the long run because X is not significant at 0.05 significance

### 4.3 The Relationship between the Value of the Revised Exchange Rate of the Iraqi Dinar and the Inflation Rate

#### 4.3.1 Unit Root Test

To measure the stability of the model variables, the developed Dickie-Fuller test (ADF) was used and it was found from Table 9 that the adjusted exchange rate value chain (X) was unstable at its level and the stability occurred after taking the first difference and the series became integrated from the first degree, while the inflation rate chain was stabilized. (3Y) at its level and the chain becomes integral from the zero degree, and because the two chains are not complementary at the same degree, the joint integration of RDL is used to perform the test of the common integration between them.

#### 4.3.2 Cointegration Test

When performing the cointegration test, we find that there is a common complementarity between the two strings at 0.01 level of significance

#### 4.3.3 Choose the number of time slowdown periods

It can be seen from Table 11 that the optimal number of periods of time slowdown is 4 time periods for both the dependent variable and the independent variable.

#### 4.3.4 Error Correction Vector Model for Long-Term and Short-Term Relationship

In order to determine the value of the relationship parameters in the long term and the short term, it is necessary to estimate the error correction vectors, and it becomes clear from Table 12 that the error term correction factor is not significant at a significant level of 0.05, meaning that there is no correction from the short term to the long term, while the long-term equation indicates that it is not There is an effect of the correction in the long run because X is not significant at 0.05 significance

#### 4.3.5 Unit Root Test

To measure the stability of the model variables, the developed Dickie-Fuller test (ADF) was used and it was found from Table 13 that the adjusted exchange rate value chain (X) was not stable at its level and the stability occurred after taking the first difference and the series became integrated from the first degree while stability occurred for the modified chain The growth of the GDP (4Y) at its level and the chain becomes integrated from the zero degree, and because the two chains are not complementary at the same degree, the joint integration of ARDL is used in order to conduct a test of the common complementarity between them.

#### 4.3.6 Cointegration Test

When performing the cointegration test, we find that there is a common complementarity between the two strings at 0.01 level of significance

#### 4.3.7 Choose the Number of Time Slowdowns

It can be seen from Table 15 that the optimum number of periods of time slowdown is 4 time periods for both the dependent variable and the independent variable.

#### 4.3.8 Error Correction Vector Model for Long-Term and Short-Term Relationship

In order to determine the value of the relationship parameters in the long and short term, it is required to estimate the error correction vectors, and it is evident from Table 16 that the error limit correction factor reached its value of 6.022, which is significant at a level of significance of 0.05, meaning that there is a correction from the short term to the long term at a speed of 6.022 while the equation indicates In the long run, there is an effect of the correction in the long run because X is significant at 0.05 significance.

The relationship between the value of the revised exchange rate of the Iraqi dinar and the value of government spending:

#### 4.3.9 Unit Root Test

To measure the stability of the model variables, the developed Dickie-Fuller test (ADF) was used, and it was found in Table 17 that both the adjusted exchange rate value series (X) and the government spending value series (Y5) were not stable at their level, and the stability occurred after taking the first difference, and the two series were Complementarity of the first degree, and because the two strings are complementary at the same degree, the joint integration of RDL is used in order to conduct the test of the common integration between them.

#### 4.3.10 Joint Integration Test

When performing the cointegration test, we find that there is a common complementarity between the two strings at 0.01 level of significance.

#### 4.3.11 Choose the Number of Time Slowdowns

It can be seen from Table 19 that the optimal number of periods of time slowdown is 4 time periods for both the dependent variable and the independent variable.

#### 4.3.12 Error Correction Vector Model for Long- Term and Short-Term Relationship

In order to determine the value of the relationship parameters in the long and short term, it is necessary to estimate the error correction vectors, and it becomes clear from Table 20 that the error limit correction factor is not significant at a significant level of 0.05, meaning that there is no correction from the short term to the long term, while the long-term equation indicates that it is not There is an effect of the correction in the long run because X is not significant at 0.05 significance

### 4.4 The Relationship between the Value of the Revised Exchange Rate of the IRAQI Dinar and the Value of Foreign Investment in Iraq

#### 4.4.1 Unit Root Test

To measure the stability of the model variables, the developed Dickie-Fuller test (ADF) was used, and it was found from Table 21 that the adjusted exchange rate value chain (X) was not stable at its level, and the stability occurred after taking the first difference and the series became integrated from the first degree. Foreign investment (6Y) at its level and stability occurred after taking the second difference and the chain becomes integrated of the second degree, and because the two chains are not complementary at the same degree, the joint integration of ARDL is used in order to conduct a test of the common complementarity between them.

#### 4.4.2 Joint Integration Test

When performing the cointegration test, we find that there is a common complementarity between the two strings at 0.01 level of significance

#### 4.4.3 Choose the Number of Time Slowdowns

It appears from Table 23 that the optimal number of periods of time slowdown is 4 time periods for both the dependent variable and the independent variable.

#### 4.4.4 Error Correction Vector Model for Long-Term and Short-Term Relationship

In order to determine the value of the relationship parameters in the long and short term, it is necessary to estimate the error correction vectors, and it is evident from Table 24 that the error limit correction factor reached a value of 0.188, which is significant at the level of 0.01 significance, meaning that there is a correction from the short term to the long term at a speed of 0.188 while the equation indicates In the long run, there is an effect of the correction in the long run because X is significant at 0.05 significance

## 5. CONCLUSIONS

• 1. Insignificance of the effect of the adjusted exchange rate value on the growth rate in the amount of money in circulation in Iraq during the period (2004-2018)

• 2. The significance of the effect of the value of the revised exchange rate on the value of Iraq’s crude oil exports in Iraq during the period (2004-2018)

• 3. Whenever the value of the revised exchange rate increases by one unit, the value of Iraq’s exports of crude oil will decrease by 0.152 units

• 4. The significant effect of the adjusted exchange rate value on the inflation rate in Iraq during the period (2004-2018)

• 5. Whenever the value of the adjusted exchange rate increases by one unit, the inflation rate increases by 0.121 units.

• 6. Insignificance of the effect of the adjusted exchange rate value on the rate of GDP growth in Iraq during the period (2004-2018)

• 7. The significance of the effect of the adjusted exchange rate value on the value of government spending in Iraq during the period (2004-2018)

• 8. Whenever the value of the adjusted exchange rate increases by one unit, the value of government spending decreases by 0.436 units

• 9. The significance of the effect of the adjusted exchange rate value on the value of foreign direct investment in Iraq during the period (2004-2018)

• 10. Whenever the value of the revised exchange rate increases by one unit, the value of foreign direct investment decreases by 0.111 units

• 11. There is an effect of the revised exchange rate in maintaining the fair value of assets in general and in light of the COVID-19 crisis in particular.

### Recommendations

• 1. The need for the Central Bank of Iraq to use more effective monetary policies that would help increase the impact on the growth rate of the amount of money in circulation as well as the rate of growth of the gross domestic product.

• 2. The need to work on providing all facilities and privileges in order to attract and encourage foreign direct investment in all economic sectors in Iraq.

• 3. The necessity of working to diversify sources of income in the Iraqi economy, encouraging development in all economic sectors, and reducing dependence on oil as the main source of income in Iraq.

• 4. Working on setting economic and financial policies that encourage companies and individuals to invest in all non-oil economic sectors.

• 5. The need to develop monetary policies that can confront emergency situations that may occur, activate the role of crisis management and increase its levels of efficiency.

## Table

The exchange rate of the Iraqi dinar, the growth rate of the monetary mass, the value of Iraq’s crude oil exports, the rate of inflation, the rate of growth of GDP, the value of government spending and foreign direct investment in Iraq during the period 2004-2018

Joint integration test

Time lag periods test

The results of the developed Dickie-Fuller test (ADF) Table 6 the results of the developed Dickie-Fuller test (ADF)

Joint integration test

Test of time lag periods

Results of error correction vector test

Results of the developed Dickie-Fuller test (ADF)

Joint integration test

Test of time lag periods

Results of error correction vector test

The results of the developed Dickie-Fuller test (ADF)

Joint integration test

Test of time lag periods

Results of error correction vector test

Joint integration test

Test of time lag periods

Results of error correction vector test

Joint integration test

Test of time lag periods

Error correction vector test results

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