The Impact of Monetary Variables on Economic Growth for a Selected Sample of Oil Countries using Dynamic Panel Models (2004-2023)

Abstract

       This paper investigates whether monetary variables (broad money supply, inflation rate, official exchange rate, interest rate) have the ability to predict economic growth expressed as GDP at current prices in the selected oil-producing countries (Iraq, Saudi Arabia, Algeria). For this purpose, annual data from 2004 to 2023 were examined using the Panel Dynamic Ordinary Least Squares (PDOLS) methodology and the Kao cointegration test. The empirical results showed that monetary variables are able to predict economic growth, and the results indicate the existence of a long-run equilibrium relationship between monetary variables and economic growth. The results indicate the positive effect of broad money supply on economic growth, and the inverse effect of the inflation rate, exchange rate, and interest rate on economic growth. The interest rate is considered the most influential monetary variable on economic growth in the long-run, followed by the inflation rate, then the money supply, and finally the exchange rate. Through the Error Correction Model (ECM), the results showed the existence of a short-term relationship between broad money supply and interest rate with economic growth. It has been shown that there is an imbalance in the relationship between monetary variables and economic growth between the long and short run, and that economic growth will take approximately two years to return to its equilibrium value in the long- run after the effects of shocks to monetary variables.