A STUDY OF THE EFFECT OF MONETARY POLICY ON THE STABILITY OF THE FINANCIAL SYSTEM USING THE MARKET CAPITALIZATION AND CREDIT GAP INDICATORS, THE IRAQI ECONOMY, A CASE STUDY FOR THE PERIOD 2010-2018

Abstract

The research tried to examine the relationship between the exchange rate, money supply in a broad sense and interest rate as key variables for monetary policy, market capitalization indicators and credit gap as indicators of financial stability using the vector autoregressive model (VAR), and the research found an increase in the market capitalization index in a year. After another, the result of the increase in the capital of government banks, while the capital of private banks remains stable, which confirms the public authorities represented by government agencies to expand government financial operations to expand economic activity, especially after the 2007-2008 crisis and the central bank’s attempt to increase financing of small and medium enterprises and the development of regions as approved Public budgets and the credit gap is very low, indicating a lagging growth resulting from credit growth, and thus there is a great possibility to increase credit to economic sectors to achieve financial stability in the medium and long term.