The Role of Interest Rates in Stimulating the Economy

 (Experiences of Selected Countries with Potential to Benefit from It in Iraq)

A Thesis Submitted to the Council of the College of Administration and Economics, Al- Karbala University as a part of Requirements for the Degree of master’s in economic sciences From the student

Anwar Kazem Saeed

Supervision

 of Assistant Professor Dr

Zainab Hadi Al Khafaji

Abstract

The interest rate is one of the important monetary tools that can be relied on to influence economic activity directly and indirectly, and one of the modern treatments that impact economic activity by attracting investment and stimulating economic activity adopted by the United States and Japan during economic and financial crises because it is a channel of influence in… Monetary policy to achieve financial sustainability and provide bank credit, and has used sustained interest rates according to strategic plans and at different rates from sector to sector, especially in sectors in which the United States and Japan believe they have a competitive advantage, which has been reflected in the increase in the competitiveness of the overall economy, then in economic activity and these countries have achieved real economic growth. The interest rate channel can be adopted in the Iraqi economy, which suffers from a chronic economic problem represented by structural imbalances and a declining role of the raw material sectors, as the contribution of the oil sector to the gross domestic product is high, which has led to an increase in government consumption expenditure and a decrease in investment expenditure, so it is possible to use the interest rate channel. The interest rate is supported by the Central Bank to increase domestic investment and attract foreign investment. Therefore, the importance of the study indicates that the. The interest rate plays an important role in stimulating the economy through investment to achieve economic development, as it represents an effective role, especially in times of economic crisis. The study also aims to present the concept and importance of the zero interest rate. on economic variables and by examining international experiences that have adopted interest rates when exposed to economic crises. The study is also based on the assumption that low interest rates have positive effects on most economic variables depending on the nature of the economy of each country. The study came to a set of conclusions, the most important of which is that the low interest rate contributed to the export of economic crises outside the United States of America and that the Japanese economy relied on the interest rate channel to provide bank credits to the Japanese. The Central Bank in times of global financial crisis in the transfer and flow of capital from the banking system to businessmen then stimulates aggregate demand, resolves crises and gives flexibility to the productive system to increase production. The most important recommendations of the study are that the Iraqi government can set preferential interest rates to stimulate and revitalize investment in the raw materials sectors..