The results show the inability to apply the Taylor rule within inflation and GDP Gaps because the monetary behave is elated from the Iraqi economy.
When applying the Taylor rule to exchange rate with the inflation and the output gap, the results do not match the nominal price announced by the central thing, which proves the lack of commitment by the Central Bank by using the Taylor rule, whether short-run interest rate or exchange rate (Nominal Anchor), so it did not stay to the Iraqi Central Bank only using the principle of Taylor with the expected inflation rate below the level of output (Macro activity) for the separation of monetary behavior from the real one of the Central Bank, and cannot consider the interest rate in the economy of the country an effective tool in the creation of monetary stability and the fight against inflationary pressures and a driving force for the growth of output.
As for the tool Exchange rate and its use as a tool to fight inflation, it is the most effective tool in influencing variables of the national economy, both monetary or real variables, where the statistical tests have proven the significant role played by the exchange rate to influence inflation and output, the opposite of what The results of the statistical tests of interest rates, inflation and output which illustrated the weakness of the effect of the interest rate in the short run on the inflation and output.
