computer generated translation of the first 7-1/2 pages which is a brief description...
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Papers in monetary policy
Hatem George Hatem: * Measuring the impact of changing the dinar exchange rate against the dollar on the gap between the total of revenues of the Iraqi general budget and the total of its expenses -
A brief description of the research
This paper focuses on the first part of the paper.
The first is to define the objectives of the research and to consolidate the definition that you adopt for the variable that is the focus of the research, ie the exchange rate of the Iraqi dinar;
the second is to explain the methodology adopted by the paper in the analysis.
The second part of the paper focuses on clarifying the mechanism of determining the exchange rate of the dinar against foreign currencies in Iraq and highlighting the pivotal role in this mechanism for the specific exchange rate of the dinar, ie the dinar exchange rate against the dollar according to the window / auction of the Central Bank of Iraq and the dinar exchange rate according to the local market.
After highlighting the importance of the exchange rate of the dinar against the dollar in accordance with the window / auction of the Central Bank of the Iraqi public budget, the paper in this section tends to present these particulars both on the revenue side and the expenditure side of the general budget responsible for the difference in the overall effect of each of these two sides to the change in price Exchange of this dinar.
The third part of the paper was devoted to mathematical analysis of the effect of the change in the dinar exchange rate against the dollar according to the Central Bank auction window / auction on both sides of the Iraqi general budget after taking into consideration the specificities of each item.
This analysis aims to reach a number of conclusions expressed mathematically and useful in making appropriate decisions on the course of the exchange rates of the dinar against the dollar in general and the exchange rate of the dinar against the dollar in accordance with the window / auction of the Central Bank of Iraq in particular.
In the fourth part, the paper presents a case study in which mathematical analysis equations are used for the effect of the devaluation of the dinar against the dollar according to the Central Bank auction (9.09%) on the total
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Of the general budget revenues for the year 2016 and the total of its expenses and the deficit achieved. This application shows that such a reduction in the dinar exchange rate in accordance with the Central Bank auction leads to a decrease in the budget deficit by 23.6%. In the latter part, the researcher lists what he considered to be the most important conclusions reached in this paper.
1. Introduction
1.1 Research objectives and definition in which the exchange rate is adopted
The purpose of this study is to explain the effect of the change in the dinar exchange rate against the dollar on the general sum of the revenues of the Iraqi general budget and the general sum of its expenses and to follow up the effect of this change on the gap between these two variables (ie deficit or surplus in the general budget) A foreign currency in this paper is the amount required of the foreign currency concerned to buy one Iraqi Dinar or, in other words, the price of one Iraqi Dinar expressed in a particular foreign currency instead of the required amount of the Iraqi Dinar to purchase one unit of a particular foreign currency or the price of one unit of A certain foreign currency expressed in Iraqi dinar
1 Exchange rate definitions are available. The exchange rate is defined by the first definition as the price of one unit of the local currency calculated or expressed in foreign currency or the amount of foreign currency required to purchase one unit of the local currency. This definition is currently the most internationally recognized
Dornbusch, Roger, Stanley Fischer and Richard Startz. Macroeconomics, op.
cit., p. 576.
The following reference shows the motives behind the widespread use of this definition in recent years
Dunn, Robert M. Jr., and John H. Muttin. International Economics, London and New York: Routledge, 2000, p
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It is clear that the exchange rate of the dinar according to the second definition is just an inverted dinar exchange rate according to the first definition.
Accordingly, according to the definition adopted by this exchange rate paper, the notion of "devaluation / appreciation of the dinar exchange rate" is necessarily synonymous with "raising / lowering the dinar exchange rate".
Equation (1) below, shown in Appendix (A), shows that the rate of change in the exchange rate is negative minus the exchange rate multiplied by the value of the exchange rate before its change to its value after its change.
................................................. x = -y.e0 (1)
e1
Where the symbols of the equation express the exchange rate indicators as shown below:
exchange rate before change
Exchange rate after change
rate of change in exchange rate
The ratio of change in the inverted exchange rate
2.1 Research Methodology
The second definition is inverted the first definition. According to this definition, the exchange rate represents the price of one unit of foreign currency calculated or expressed in local currency or the amount of local currency required to buy / sell one unit of foreign currency.
This definition has been adopted in a number of scientific studies, to name but a few
Catoa, Luis A.V. "Return to Basics: Why Exchange Rates," Finance and
Development, September 2007, p. 48
The Central Bank of Iraq adopts the final definition of the exchange rate in its official statistics on the dinar exchange rate
But not limited to: "Annual Statistical Bulletin" 2016 issued by the Directorate General of Statistics and Research of the Central Bank of Iraq and available on the following website:
http://www.cbi.iq/documents/Annual_ 2016, fpdf
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The paper adopts a simple mathematical analytical approach that does not exceed the algebraic equations of the intermediate education stage. In this research, the employment of mathematics in economic analysis has three important advantages.
On the one hand, this employment is characterized by its ability to express clearly and simply the relationships between the economic variables provided by economic theory and to facilitate the attainment of facts and conclusions that are difficult (and often impossible) to obtain through conventional analysis (ie, deductive or inductive)
The mathematical analysis tools allow precise identification and accuracy of the effects of a change in a given variable on the variables to which it is associated either as a dependent variable or as a specific variable, and, on the other hand, mathematical equations expressing the relationships between the variables Tsadah allows the possibility of using the actual data on the variables concerned to muzzle these transactions Alamaadalt, and therefore quantify what it takes to change one or generated variables, a certain amount or a certain percentage, from the change in the variables associated with it through certain identical or causal relationship specific.
Mathematical analysis, like any theoretical analysis, needs to employ simplistic hypotheses.
Such hypotheses allow first to focus on the main elements and parameters of the subject of the analysis, and secondly to identify the causal relationships between their fundamental and specific variables, and express them in clear, ambiguous mathematical formulas.
On the other hand, it is necessary to resort to additional simplistic hypotheses when starting to employ what results from the mathematical analysis of the subject from equations that reflect the causal relationships between the economic variables involved in analyzing a given economic reality for two reasons:
First, The analysis should capture and contain those features of the economy in question that are of particular relevance to the subject of the research and which have important implications for the analysis that leads to the conclusion of the analysis of the relationships among the variables concerned by research within a given economy;
secondly, the available statistical data Economic changes rarely fully conform to definitions in the pure form given to them by theoretical frameworks; therefore, simplistic hypotheses must be adopted that facilitate the adaptation of theoretical definitions of relevant economic variables to available data,
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The coefficients of mathematical equations can eventually be quantified and used to quantify the effect of changes in the (independent) variables on dependent variables.
2. Determining the system of dinar exchange rates and their role in the accounts of the general budget of the Iraqi state
2.1 Determining the exchange rate of the dinar against the dollar and against other foreign currencies
In accordance with the mechanism adopted in determining the exchange rate of the dinar against foreign currencies, the Central Bank administers an official exchange rate for the Iraqi dinar against the United States dollar only.
The term exchange rate or central bank auction is used for this exchange rate. The central bank adopts the exchange rate of the central bank's window / auction to transfer the revenues of the general budget from oil exports from the dollar to the Iraqi dinar when deposited in the account of the Ministry of Finance with the Central Bank.
The rate of exchange of this window / auction is used by all state institutions and the public sector to convert the value of its financial transactions from the dollar to the Iraqi dinar and vice versa when necessary.
It is clear from the foregoing that the exchange rate of the window / auction in particular is the basic and decisive exchange rate in the general budget accounts, and not any other exchange rate of the dinar, whether against the dollar or against any other foreign currency.
The central bank controls the exchange rate of the dinar against the dollar in the market through the quantities of dollars offered for sale through the auction of foreign currency in accordance with the laws of supply and demand.
(Henceforth, the terms of the auction exchange rate and the market exchange rate will be used to denote the dinar exchange rate against the dollar in accordance with the CBI / CBI window and auction, respectively).
In general, the CBI avoids setting official exchange rates of the dinar against other foreign currencies or intervening in the course of the dinar exchange rate against other foreign currencies in the domestic market. The exchange rate of the dinar against the dollar, whether according to the window / auction of the Central Bank or according to the local market,
2 Explanation of the exchange rate of dinars against the dollar is available in the following study: d. Ali Mirza "Follow-up: Exchange Market in Iraq since the adoption of the budget" 2015 Voice of wisdom p.6.3 Study available on the following website:
http://www.iawvw.com/news/iraq/1248-2015
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The exchange rate of the dinar is taken against all other foreign currencies.
The exchange rate of the auction depends on the state institutions as a basis for converting foreign exchange rates against the dollar as prevailing in the markets to exchange rates against the Iraqi dinar when the amounts are in a foreign currency.
The exchange rate of the dinar against other foreign currencies in the local market is determined as the result of the dinar exchange rate against the dollar in the local market and the foreign exchange rates against the dollar as prevailing in this market, which is usually similar to that in the global markets.
2.2 The role of the auction exchange rate in determining the gap between the general sum of the revenues of the general budget and the total sum of its expenses
The auction exchange rate is one of the main determinants of the size of the gap between the total revenues of the Iraqi general budget and its total expenditure.
Due to the fact that important paragraphs on both sides of the general budget depends directly on the price of foreign exchange in Iraqi dinar and specifically on the exchange rate of the dinar against the dollar in accordance with the window / auction of the Central Bank of Iraq.
The Iraqi budget is characterized by the fact that the dependence of the revenue side on foreign exchange significantly exceeds the dependence of expenditure on this cash. On the one hand, the contribution of the oil supplier in the revenues of the general state budget is higher than the usual conditions, according to the experts' assertion, the 3 (90%).
As mentioned previously, the Ministry of Finance transfers the revenues of the general budget of the State of the oil dollars to the Central Bank of Iraq, In the account of the Central Bank at the exchange rate auction On the other hand, the spending of the state budget is not limited to the purchase of imported commodity items and cash payments and transfers to the outside world (to serve external public debt and for other purposes) and Affected Which are directly valued by changes in the exchange rate of the auction. In addition to covering domestic commodity input costs, this expenditure also includes expenditure items that are disbursed in the form of payments
3 d. Mohamed Mazhar Saleh, "Monetary and Financial Policy and Control of Inflation Variables and Exchange Rates", former source, P. 7
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And cash transfers in local currency whose values are not directly or indirectly affected by the exchange rate of the auction (including but not limited to compensation of employees, grants, cash subsidies, internal public debt service and social welfare services).
These local payments and remittances typically account for more than half of the total public expenditure of the Iraqi public budget, and based on available data, the total average share of compensation of employees and the average share of social welfare only in the total expenditure Iraq's general budget for the period 2016- 2014 is about)% 59.11 (), see Table 1).
This confirms the terminal, that more than half of the general budget of the Iraqi state not affected by the rise of spending or decline in the dinar exchange rate against the US dollar or any other foreign currency.
Because of this wide variation in the nature and degree of correlation with the foreign exchange rate, any change in the exchange rate will inevitably lead to a change in the overall sum of the state budget revenues, which is significantly different from the percentage change in the total expenditure.
Between the general sum of the revenues of the general budget and the general sum of its expenditures (ie deficit or surplus of the general budget).
3. Mathematical analysis of the effect of the dinar exchange rate against the dollar on the Iraqi general budget
This part of the paper uses simple mathematics that does not exceed the algebraic equations that are taught to middle school students to analyze and determine the effect of the change in the auction exchange rate on the general sum of the general budget revenues and the total of their expenditure, and thus on the gap between these two variables. Real-level change.
3.1 Hypotheses of analysis
The importance of simplistic hypotheses in the mathematical analysis of phenomena and economic relations was emphasized in the previous section. The analysis in this paper is based on the following assumptions:
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A- Oil revenues contribute more than 50% of the revenues of the general budget.
B) Expenditure of the general budget consists of two categories of expenditure: expenditure on imported commodity inputs, payments and remittances abroad, which require foreign exchange to be completed + expenditure on non-commodity items in the form of domestic / local cash payments and remittances (such as compensation of employees, grants, cash subsidies and remittances) (Internal public debt and social welfare services).
C) The percentage of expenditure on total goods inputs, payments and cash transfers abroad is less than 50% of the total budget expenditure.
(D) Import all commodity inputs from countries that depend on the dollar as a national currency and / or from those that have fixed the exchange rates of their currencies against the dollar.
To facilitate the expression of economic relations by means of algebraic equations, the Latin characters will be used for the economic variables concerned, as shown below:
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