August 23, 2015
Economic recession in Iraq: vision diagnostic
Dr. The appearance of Mohammed Saleh
There are three aspects indicate the recession or the current economic downturn in Iraq .fmadlat growth in real GDP is still estimated at less than 1% and the total unemployment is about 28% of the total labor force, especially among young people, while the inflation is the most bizarre, as under Annual inflation basis without 2% despite the exchange rate volatility, which increased landing on the 12% compared to the official rate stable and fixed the exchange rate for reasons Takidah imposed by Article 50 of the federal budget for 2015, which obliges the Iraqi Central Bank to restrict sales of foreign currency, and the roof of a specific law Not more than $ 75 million in each working day. Was removed after Article 50 above the Federal Court's decision recently released this year which led to the rise of the Iraqi dinar exchange rate and its recovery rate to be close to the official rate and the margin is currently only 5% in the exchange market, especially during the fourth of July weekend 2015. In the face of widespread Tying between the manifestations of the recession and its variables three (high unemployment and low growth and deflation), the Iraqi economy has become surrounded by monetary phenomenon very strange which is closer to the phenomenon of the liquidity trap Liquidity trap which mark it strong cash demand for the dinar and the dollar together behavior, which was born correlation between the exchange rate and the overall level relationship prices through real positive interest rate Taataaks a relationship with what was the case in times of inflationary nineties. The relationship between the exchange rate and the general level of prices is very strange and almost Today precautionary Hedge Monetary itself in the evolution of market behavior over the transition from a liquidity trap in dinars to the dollar liquidity trap.
To refer to the economic crisis experienced by the country in the nineties of the last century and during the current account deterioration of the oil on the budget was fed leverage alternative-strong automatic cash release (via the expansion of domestic public debt-funded treasury vouchers in exchange for cash release and then rising aggregate demand rates), the availability of liquidity Local overly time that has strengthened the case of escape from the criticism towards carrying goods for fear of negative real interest which is what can be called the internal Baltazahm Crowding in. Thus, the structural forces generated inflationary expectations (especially the forces of surplus operations - and I mean profitability and rentier) owns behavior influential in moving that vehicle or cash medium of public financial ability to finance the budget to inflation or by monetary issuance superior to face Aotaweid inflationary effects of the deterioration of the exchange rate Iraqi dinar value of money and foreign direct transition to the relative prices of basic commodities and all other, especially food which constituted 62% of the family budget expenditures. Thus the inflationary expectations generated by the exchange market turn into actual inflationary forces Aahrha general level of prices rising once the growth of local public liquidity through government borrowing cheap (ie cheap Monetary Policy)
If they hyper-inflation conditions in the nineties of the last century, at the very least are the product of structural forces possess management exchange rate as a function of generating inflationary expectations of the interaction of the foreign exchange market and the dominance of foreign currency to urge growth in the levels of liquidity funding promised deficit through monetary issuance as a vehicle or mode inflationary lead to Low internal value of money and then the general level rise of prices (ie the case of escape from criticism goods into) the state of the current recession in which the Iraqi economy lives and the crisis of liquidity and the tendency towards a liquidity trap as a behavior monetary demand (as well as the high autonomy of the Central Bank of Iraq) have all made signal of positive real interest contrast, referring to the general level of prices in the price of finding a correlation between the feedback and triggered inflationary expectations and the Iraqi dinar exchange rate.
So it can not get rid of the current liquidity trap without a price. And that the price is high real interest rates down even if the benefit is cost Alfrsah to relocate to trap liquidity last foreign currency (the case with today is a relative escape from owning Goods few foreign goods superiority and cost-effective to keep the currency as a commodity with a high payoff carries the impact of wealth and leaked from a positive real rate of interest is high) rise in the dollar's value is the price of compensatory to abandon the high yield of the expected real interest about the high degree of liquidity trap Dinars (after an absence of inflationary expectations, which has been replaced by high real interest rates positive outlook)
Structural forces generated as touched inflationary expectations previously, namely that the structural forces and most of the forces of surplus operations, estimated day rate of 83% of the total income forces, has become does not hold a function poignant and generating expectations Altdkhmayh as long as the vehicle liquidity almost absent, but has in the envelope deflationary current (function generator to the expectations of high real positive interest rate) .oan part of the backlash in the low exchange rate of the dinar, comes inevitably of the cost of the collection of liquidity in dinars to buy foreign currency .utalma that this backlash going on in the form of interest rate (which represents the cost of financing the purchase of foreign currency dinar Iraqi), the downturn in the general level probably will continue to longer-term phenomenon. As the actual volatility of the exchange rate will remain anxious and subject trap domestic liquidity and rising real interest rates, a situation which has euphemistically called super Palmzahmh under deflation Super crowding out.
2. The General liquidity contraction and polarization: with falling oil revenues from a monthly average increased to $ 8 billion in early 2014 to a monthly average did not exceed 4 Milirdolar, which restructured government spending so as to ensure the current budget's basically about investment projects stopped due to a failure to approve the budget year 2014 while the investment budget for 2015 may Arthnt projects postpaid agreements, particularly the new ones, a process that is still under way, let alone stop the majority of ongoing projects and stumbled dues contractors and contractors. In the face of this financial distress CBI gave a catalytic program by about 17 trillion dinars, which shares through open market operations of the resolution is an important aspect of bottlenecks bank liquidity and enabled the budget to borrow Treasury vouchers and other loans across the market. With total domestic public debt amounted to about 25 trillion dinars.
However, the phenomenon of a liquidity trap is still high as the private consumer spending fell indicators or Ahli for high rates amounting to 14% of GDP to about 4% of that output. Which means that people are watching the development of the cash their income to refrain from exchange and stick function high cash demand moved to a high level last influenced by nominal interest generated by the rise (outer overcrowding factor and low expectations Allatdkhmah) and that the matter here to cash balances of individuals (liquidity trap) as the accumulation of surplus consumer unspent and are hedged by the face of the case of uncertainty about future income and growing cash balances to individuals through virtual real interest expected, and I can call this phenomenon a metaphor (Bmgulwb the cost of welfare as a result of inflation and addressed by Professor Martin Bailey economy in the famous discussed in the year 1956) as how great the case of austerity that have undergone forth the general budget for more than a year of expectations of a liquidity trap in the economy given that public expenditures are inherent GDP and did not say is the other 55% of that output. As for the Iraqi banking system is the other underwent sharp and to conduct high demand in the cash and then enter into a liquidity trap is different. Higher government Valaguetrad which sucked most of the stimulus program of the Central Bank referred flows to him earlier and dominated the bulk of bank liquidity available, has been around for government banks to big investor in government securities in exchange for a mile weak in the granting of credit even to meet with high interest rates or high fit and genuine interest that are subject to state Allatdkhm . Thus, the cost of credit has become high because of high interest due (outer scramble) while private banks shrank to high liquidity and liquidity by about a stomach for external conversion. And interest and the cost of referring get foreign currency became requires the transfer of the cost of bank interest to foreign currency as the price to give up a liquidity trap in Iraqi dinars and transferred to trap liquidity Last but foreign currency, while adding banks tax trusts amounting to 8%, which is currently suspended, which promised at the time as a external converter like the Tobin tax (Tobin Tax). It is a precautionary mainly in the behavior of speculators from the risks distributors.
In light of the foregoing, the three traps liquidity Liquidity traps subject to it macroeconomic which handles function highly vulnerable to monetary request expectations of real interest rates positive, a trap liquidity individuals and trap liquidity State-owned banks as a force enjoys sovereign liquidity and finally trap liquidity of private banks that enjoy family powers the royal liquidity.
3-price mechanism transition and expectations:
Case coexistence appear with two different two phases of economic eccentric (and I mean the current economic recession, which is the opposite of hyper-inflation in the contract the previous Alstsaina) three phenomena reversible decade Altsaina inflationary economy from deflationary status quo: firstly is the availability of a vehicle or mode of domestic liquidity has worked to move the landing forecast The yield on the money in real interest rates are negative because of inflation and inflationary expectations, which had generated effective demand caused by monetary issuance. The second is the absence of monetary issuance facilities to the crisis of liquidity or contraction now, taking generates expectations of real positive interest maximize the trap of domestic liquidity. The third was , the abandonment for trap domestic liquidity towards foreign currency requires compensation future is the transfer of real interest rates positive to the exchange rate at this time any reduction in the dinar under the influence of interest compensation (as if borrow an interest rate in order to buy the dollar) and here realized the case of foreign competition on foreign currency could be called foreign high-Palmzahmh ( Super crowding out). The process of loose liquidity flexible and generation through cheap financing Monetary inflation policy in the nineties of the last century had created a strong bond between inflationary expectations and its tool liquidity generated through public spending on the one hand and the high general level of prices on the other hand, and the effects of backlash in which overlapped the reasons the results. Where real interest rates negative signal has been sent its forecast inflationary through the general level of prices and under the influence of the tool carrier or vehicle carrier, a force monetary issuance and the evolution of money supply growth and deficit financing over the functions of demand cash flying toward abandonment of liquidity and to maximize the money rotation speed and speculative exchange rate, which led the falling dollar by rising inflationary expectations or negative real interest rates. In other words, the increasing spending or aggregate demand for individuals with the growing financing cash for issuance or funding to inflation in the general budget, emerged the phenomenon of internal contention Crowding in represented by abandoning cash for the benefit of goods and possession of .oha case has become fit behavior critically where the cash demand inversely with inflationary expectations because of the role of the signal (negative real interest) in the casino speculation on the signal degradation constant exchange rate, a behavior and conduct is a form of speculation and we can call it internal Baltazahm Super (Super crowding in)
The case of the current downturn has created quite different from the loose liquidity phase and funding to inflation economic relationship, if it leads the cash demand behavior (of high liquidity trap) and associated positive relationship with the real interest rate to transfer the benefits of such a reference truly unexpected benefit and through the available liquidity of the field Monetary exchange rate to the conduct of any foreign currency liquidity trap. Given that interest rates may come into contact with the inalienable part of the installation of the exchange rate. And it emitter element down the exchange rate of the Iraqi dinar himself, Moving from the local currency into foreign currency (within the movements subsequent backlash) mean sacrificing trap domestic liquidity, and that the price of sacrifice is the signal transfer real interest rates positive rate to the exchange rate and the opposite direction of any of the trap of domestic liquidity Dinars to trap liquidity in foreign currency will be a difference is by discount precautionary value equal to the real positive interest the same rate (ie, the price of abandoning trap domestic liquidity for the benefit of the trap of foreign liquidity. and that the price of real interest rates positive and moving to the exchange rate is the price of abandoning trap domestic liquidity. It contention external high as mentioned above in contraction severe rentier economy conditions, as it changed price signals (from a real unexpected negative interest during the cash over to the real unexpected positive benefit in monetary contraction time) unrealized causal relationship between the exchange rate and expectations of the general level of prices. In other words, Just solved real interest cationic replace inflationary expectations expectations (ie negative real interest during the cash over the stage), the disappearance of liquidity cart or cheap cash (Senyorreg) and prosperity of a liquidity trap and the prevalence of deflation in this time with the Central Bank of survival independent of the government and stick to being is not Leverage finance the budget in cash or cheap alternative to finance domestic public debt without going through the cash market, to confirm the stability of money growth and slow reproduction (relative to the domestic product) which is different in another image Alncodeh school behavior in the economy when describing mechanical contraction Kmgulwb of inflation.
A key conclusions borne out of the field of economic action at two different stages of diagnosis stages of inflation and deflation experienced by the recent economic history of Iraq. Inflationary first phase has shown during the siege (economic) on Iraq in the nineties of the last century, the next few years, the real interest rate negative signals (expected) that she was sending the money market, particularly exchange market turn off and through monetary issuance vehicle (continuous) to the expectations of inflationary sharp (taking place in the general level of prices) after interspersed with sharp changes in relative prices. Also it realized the effects of instant feedback is moving from (high) in the actual negative interest to the case of (lower) effective in the Iraqi dinar exchange rate, meaning that the exchange rate fluctuates in decline or rise in inversely with the actual fluctuations in the level of interest a form of price speculation arising for expected depreciation of the exchange rate upward.
Thus, the country has seen a sharp leaps inflationary averaged two places places over more than a decade and by 50% per annum. The current phase of recession, and with the growing phenomenon of the liquidity trap, the role of the vehicle carrier may disagree a lot and turned the country from inflation to deflation. Depravity Monetary sent today signals to the price of real positive interest (expected) which turns into a deflationary expectations in prices (especially at the level of the general level of prices) Whenever the trap of increasing liquidity rising cost of funding the Iraqi dinar, a condition resist the occurrence of price hikes due to the scarcity of liquidity itself, but find significance in the positive real interest high. And that the effect of retrovirus (actual) to signal real interest cation will turn into the foreign exchange market, as it is deducted exchange dinar for which the interest rate rises by the abandonment of the trap of domestic liquidity and transferred to a liquidity trap foreign currency rate which in this case a form of hedge Hedge forms, but without to witness the general level of prices of any fluctuation little toward the rise. The cost of the low stage in the dinar exchange rate is the price deflationary abandon the dinar liquidity and access to liquidity in foreign currency interest bearing dinar liquidity. In other words, the exchange rate will carry Frsah costs of return for high potential or unexpected represented by the real interest rate positive moved its impact of the dinar to the dollar trap liquidity last foreign currency added to the value of the dollar intake and this Maatmt called external Baltazahm Ultra which is equal to the day the benefit of monetary policy amounting to 6% Matrouh price it basically inflation of 1.6%, which is equivalent to today completely exchange differences between the central and parallel market.
Finally , if the exchange rate in times of hyper-inflation is send an indication of inflationary expectations (a negative real interest) through the money supply and the increasing monetary issuance cart and finance the budget deficit and then the deterioration of the exchange rate, the exchange rate in times of economic downturn and stick trap liquidity, send different from the previous stage price signals a signal (real interest expected positive rates), something which maximizes the trap of domestic liquidity and strengthens the demand for cash balances to achieve the so-called metaphorically potential consumer or expected surplus (by Martin Bailey theory) which individual behavior comes to maximize something prosperity due to liquidity is expected to enjoy high purchasing power and the value of their returns. In other words, the reality of the situation deflationary marks the attainment of the case are the (inverted) Martin Bailey theory (based on the calculation of the cost of welfare caused by inflation) and inverted here from our point of view can be called in this case (gains welfare resulting from the downturn) as a behavior different in the monetary demand for individuals (which Unlike the cost of welfare due to inflation in the prevailing economic literature). (**)
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