Monetary Anchors and their Impact in Output Gap And Inflation Study of selected countries  A standard For the period (1990-2015)

Submitted By
Zahraa Yousef Abbas Al – Saadi

To the Board of College Of Management and Economics, University of Karbala, which is part of the requirements to obtain a master’s degree Financial and Banking Sciences

Supervising Professor Dr
 Abbas Kazim Jassim Al-Da’ami

Abstract

          Most central banks apply monetary policy within a framework and provide a structure for making monetary policy decisions. In addition to facilitating the decision-making process and delivering these decisions to the public more easily. This framework, or regime involves targeting a specific nominal variable that is used as anchor for monetary policy in order to reach the ultimate goal of stabilizing the price level. The stable price level or at least the low inflation rate is the main target of most central banks. Central banks are also trying to avoid unemployment and steer them toward productivity gaps close to zero. This flexible targeting of inflation leads to Taylor’s rules, which indicate the amount of the nominal interest rate reaction on the inflation gap and the output gap.

        Accordingly, in this paper, we try to explain the concept of cash stabilizers and to show the role they play in stabilizing the general level of prices through their effect on the output gap & inflation ,When examining the relationship between Monetary anchor, output gap and inflation using the relationship of co-integration, causality and regression analysis as well as analysis of the path of the study variables for Canada, South Korea and Iraq, there is a relationship between these variables, but the degree of relationship varies depending on the strength of the country’s economic system and the extent of its financial market development As well as the efficiency and transparency of monetary policy, In Canada, the most significant monetary stabilizer in the output gap and actual inflation is the expected inflation followed by the interest rate. The exchange rate has little effect as the expected inflation is the central or intermediate objective of the Bank of Canada monetary policy. The interest rate is an important operational objective for making bank contacts with the public. As for South Korea, the interest rate was more influential on the output gap, followed by the exchange rate and then the expected inflation, and the biggest stabilizer has an impact on inflation is the expected inflation and the weakness of the interest rate is much weaker, but the exchange rate does not affect at all. Infusion M, Iraq was the biggest impact in both the output gap and inflation is the exchange rate.