Role of Different Channels in Moderating The Impact of Oil Shocks on Iraq’s ‎Macroeconomy: An MSH-VAR ‎Approach

  • Authors

    • Zuhair Mahmoud Kazem Faculty of Economics and Business Administration, University of Tabriz, Tabriz, Iran‎
    • Zahra Karimi Takanlou Faculty of Economics and Business Administration, University of Tabriz, Tabriz, Iran
    • Hossein Asgharpur Faculty of Economics and Business Administration, University of Tabriz, Tabriz, Iran
    https://doi.org/10.14419/qrw48z98

    Received date: September 15, 2025

    Accepted date: September 27, 2025

    Published date: October 18, 2025

  • Oil Price Volatility; Monetary Policy; Fiscal Policy; Exchange Rate Channel; ‎Macroeconomy; MSH-VAR Model

  • Abstract

    This study examines the effect of oil price shocks on Iraq’s macroeconomy through the ‎channels of monetary policy, fiscal policy, and the exchange rate, using the Markov ‎Switching Heteroskedastic Vector Autoregression (MSH-VAR) model. The results ‎indicate that oil price shocks have significant impacts on macroeconomic variables. In ‎the fiscal channel, higher oil prices directly increase the budget deficit and gross ‎domestic product, but in unstable regimes, these effects are short-term and accompanied ‎by stronger inflationary pressures. In the monetary channel, the interest rate has only a ‎limited role in transmitting oil shocks, reflecting the weakness of monetary structures in ‎Iraq’s economy. The exchange rate channel also plays a marginal role in transmitting ‎shocks, likely due to the central bank's exchange rate stabilization policies. Impulse ‎response functions confirm that the effects of oil shocks are stronger and more ‎persistent in stable regimes, whereas in unstable regimes, positive effects are more ‎limited and inflationary pressures are stronger. These findings underscore Iraq’s ‎significant dependence on oil revenues and the need for coordinated fiscal and ‎monetary policies to mitigate vulnerability to oil price shocks‎.

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    Kazem , Z. M. ., Takanlou, Z. K. ., & Asgharpur, H. . (2025). Role of Different Channels in Moderating The Impact of Oil Shocks on Iraq’s ‎Macroeconomy: An MSH-VAR ‎Approach. International Journal of Accounting and Economics Studies, 12(6), 666-678. https://doi.org/10.14419/qrw48z98