A thesis submitted to the Council of the College of Administration and Economics, University of Karbala, as part of the requirements for the degree of Master of Science in Economics
Submitted by student
Karar Abdul Zahra Hussein Al-Sahlani
Supervised by
Prof. Dr. Khadir Abbas Hussein Al-Wali
Dr. Ali Ismail Abdul Majeed Al-Nasrawi
In recent years, many economies—particularly in the aftermath of the 2008 global financial crisis—have increasingly resorted to the use of unconventional monetary policy tools, due to the limited effectiveness of traditional tools under conditions of near-zero interest rates, weak monetary transmission channels, and the emergence of financial distress that hindered economic activity and monetary stability. This study aims to analyze the impact of unconventional monetary policy instruments in addressing financial distress in selected economies, with a particular focus on the potential adaptation of these tools within the Iraqi context.
The study adopts both analytical and econometric approaches. First, it explores the theoretical framework of unconventional tools such as quantitative easing, credit easing, forward guidance, and balance sheet adjustments by central banks. It also analyzes indicators of financial distress, including credit gaps, asset pricing distortions, and non-performing loan ratios.
A selection of countries that have implemented unconventional policies is examined as case studies to assess the effectiveness of such tools in mitigating financial distress and restoring monetary stability. On the empirical side, the Autoregressive Distributed Lag (ARDL) model is used to examine both short- and long-run relationships between unconventional monetary policy instruments and financial distress indicators in those economies. The ARDL model is particularly suitable due to its ability to handle time series data with different levels of integration and capture lagged effects of monetary variables.
For Iraq, the study evaluates the institutional and financial infrastructure of the Central Bank and the banking sector, identifying key challenges to implementing unconventional policy tools—such as limited financial market depth, low financial inclusion, and constrained monetary policy independence. The empirical and analytical results indicate that adopting unconventional tools could help alleviate financial distress and stimulate credit activity in Iraq, provided that appropriate institutional and legislative conditions are in place.
