Using the SVAR model for measuring the impact of oil prices on the inflation rate in Iraq for the period (2004 - 2021)

Abstract

The objective of the study is to examine the correlation between oil prices and inflation and to assess the influence of oil prices on the inflation rate in Iraq from 2004 to 2021. The research utilized the SVAR model to determine a clear correlation between oil prices and inflation in Iraq. Additionally, it was found that a specific percentage increase in oil prices would result in a corresponding rise in the inflation rate by 763% of that percentage. Furthermore, when a structural shock in oil prices occurs in the global market, equivalent to one standard deviation, it will lead to a 0.08% increase in the inflation rate even after two and a half years. The research suggests that to mitigate the impact of shocks and maintain stability, Iraq should utilize its financial surpluses by investing in sectors where it has a strong comparative advantage. This can generate additional income for the country, apart from oil revenues, and help the Iraqi economy avoid inflation when global oil prices are high, thus reducing the impact of imported global inflation.