Title:
THE FEASIBILITY OF APPLYING QUANTITATIVE EASING POLICIES TO COUNTER IMPORTED INFLATION: A FORWARD-LOOKING STUDY WITH APPLICATIONS TO THE IRAQI ECONOMY (2020-2025)

Authors:
Riyadh Malik Al-Falahi, Iraq

Abstract:
This study investigates the unconventional proposition of applying Quantitative Easing (QE)—a tool traditionally used to combat deflation in advanced economies—to mitigate imported inflation in a fragile, oil-dependent economy like Iraq. The core research problem stems from the theoretical ambiguity of repurposing a deflation-fighting instrument for an inflationary context dominated by external shocks, exchange rate volatility, and heavy import reliance. Employing a tripartite methodology of theoretical analysis, structural diagnosis, and forward-looking econometric modeling (using a Structural VAR model for 2020-2025), the study assesses Iraq's institutional readiness and simulates the potential impacts of a hypothetical QE program. Key findings reveal that Iraq's current economic environment scores poorly on a readiness index (37.8/100), primarily due to an underdeveloped bond market, limited central bank independence, and a dominant exchange rate channel. The modeling confirms that in Iraq's import-dependent structure, a standard QE shock would transmit overwhelmingly (73.5%) through exchange rate depreciation, thereby exacerbating imported inflation in the short term. The study concludes that implementing traditional QE under present conditions is infeasible and counterproductive. However, it proposes a tailored, conditional, and gradual “Iraqi Tailored QE” (ITQ) program as a viable forward-looking option. This program's feasibility is strictly contingent upon prior and concurrent institutional reforms—including deepening financial markets, enhancing central bank autonomy, and ensuring fiscal-monetary coordination—integrated within a comprehensive economic reform strategy. The research provides a detailed roadmap and institutional design for Iraqi policymakers, emphasizing that QE should be an outcome of, not a substitute for, fundamental structural transformation.