THE RELATIONSHIP BETWEEN MONETARY POLICY AND FINANCIAL INCLUSION IN IRAQ: IMPACTS AND DEVELOPMENT PATHS

Abstract

This paper measures and examines the connection between financial inclusion metrics and monetary policy, and investigates the advantages and difficulties of achieving it, especially regarding access to banking services. The study addresses a gap in a literature concentrated on advanced economies, which offers limited evidence from oil-dependent, post-conflict banking systems. the study employs a quantitative approach using quarterly data from 2015 through 2023 (a total of 36 time series) and modern econometric techniques including error correction and autoregression distributed lags. the results indicate that banking density was significantly lower than the international norm of one bank branch per 10,000 people; in fact, there were approximately 480,000 people per bank branch. however, bank penetration exceeded 2 percent over the course of the study. While efforts made by the central bank to encourage the use of bank accounts failed to result in a sufficient increase in the number of bank accounts or bank cards issued, bank account depth as a share of GDP peaked at just 13%, further illustrating the limited contribution credit has toward GDP. Both an improvement in the index for financial inclusion and an increase in the narrow money stock (M1) are positively correlated at a statistically significant level: specifically, for every 1% increase in M1, the index for financial inclusion will rise by .87%. Similarly, the index for financial inclusion will rise by 2.5% for every 1% growth in the broad money supply (M2). Furthermore, the error correction term (-.147) indicates that approximately 15% of short-run disequilibria associated with financial inclusion are corrected each quarter under a stable long-run equilibrium.