Using the ARDL Approach, Measure the Impact of Global Oil Price Fluctuations on Foreign Reserves

Abstract

This paper seeks to analyse the effects of global oil price fluctuations on foreign reserves by employing the ARDL approach. The study period spans from 2004 to 2022. An appropriate model, the Autoregressive Distributed Lag (ARDL) model, was chosen due to its strong alignment with the time series test results obtained from the unit root tests. The research sample was carefully selected to cover a significant time period, from 2004 to 2022. The findings illustrate the possibility of evaluating monetary policy's effectiveness in regulating various forms of foreign reserve volume during the research. It is clear that the first system, the boom system, surpasses the second, the recession system. Additionally, the Iraqi government, which is responsible for managing the economy's cash liquidity, uses the central bank's monetary policy instruments. As expected, a decrease in global oil prices leads to a decline in revenue. This study suggests the importance of understanding the connections between global oil prices, foreign reserves, and the growth of the Iraq Stock Exchange. It also emphasizes the need for well-rounded policies that consider both the quantity of foreign reserves and the performance of the stock market. In order to accurately predict the level of foreign reserves and the performance of the Iraqi stock market, it is crucial for the government, policymakers, and investors to carefully assess potential fluctuations in oil prices, currency rates, foreign reserves, liquidity, and foreign direct investment. This study adds to and improves the existing body of literature in several ways. Firstly, numerous studies have investigated the different elements that impact foreign reserves, including income, technological advancement, renewable energy, natural resources, urbanization, healthcare expenses, tourism, geopolitical uncertainties, and globalization. However, despite their significant influence on both the supply and demand of environmental assets, there has been no specific study conducted to analyse the effects of global oil price fluctuations on foreign reserves in Iraq.