Monetary economy
Mohammad Mahdi Asgari Dehabadi; Ali Nassiri Aghdam; Hossein Doroodian; Parisa Mohajeri
Abstract
Iran's economy has faced many problems in recent years. the government's indebtedness to contractors stands as one of Iran's most pressing issues which has had bad effects on the monetary and banking system of Iran. This predicament has precipitated several adverse consequences, including the cost of ...
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Iran's economy has faced many problems in recent years. the government's indebtedness to contractors stands as one of Iran's most pressing issues which has had bad effects on the monetary and banking system of Iran. This predicament has precipitated several adverse consequences, including the cost of funds for banks, elevated interest rates on loans, an unrestrained surge in the money supply, and a diminishing capacity for banks to extend loans. To tackle this challenge, some economists with emphasis on endogenous nature of money, propose a remedy grounded in credit easing. this approach entails settling the government's debt to contractors by effecting adjustments on the asset side of the Central Bank's balance sheet. However, the practical execution of this policy hinges on the utilization of Central Bank resources, raising concerns about a sudden surge in money supply and potential adverse impacts on other economic variables, notably inflation. This has cast doubt on the feasibility of implementing such a strategy. In this research, we delved into the fundamental principles and prerequisites of adopting the credit easing policy in Iran. To evaluate the potential outcomes of implementing this policy, we employ the stock flow consistent model. Our findings reveal that settling the government's debt to banks through the utilization of Central Bank resources leads to an expansion in the monetary base and money supply, an upswing in real GDP, and a decrease in both inflation and interest rates when juxtaposed with the baseline scenario.
Monetary economy
Hossein Esfandiar; teymoor mohammadi
Abstract
Thanks to Blockchain technology the future of banking can take place without intermediaries (especially banks), and in this regard, Central Bank Digital Currency (CBDCs) and stablecoins of BigTechs are mentioned as the main competitors of the new monetary era. Based on this fact and in parallel with ...
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Thanks to Blockchain technology the future of banking can take place without intermediaries (especially banks), and in this regard, Central Bank Digital Currency (CBDCs) and stablecoins of BigTechs are mentioned as the main competitors of the new monetary era. Based on this fact and in parallel with the efforts of most countries on the (theoretical and experimental) investigation of CBDC’s aspects, this article, using a dynamic stochastic general equilibrium (DSGE) model, in the period Q1 1388 to Q4 1400, economic effects of issuance of RamzRial (Iranian CBDC) was modeled and analyzed. In our model, RamzRial is an account-based, widely available to the general public, interest-bearing and cash complementary money, and the results of the implementation of quantitative and price rule policies were examined in the presence of RamzRial. The results of the model based on the data and calibration indicate that the issuance of RamzRial, while diversifying central bank tools, will improve the effectiveness of monetary policies in the event of (supply and demand) external shocks. One of the significant results, especially for the stagflation condition of Iran’s economy, says that through issuing (an appropriate amount of) RamzRial the central bank can implement disinflation programs while reducing its unwanted negative effects on production. Also, in addition to influencing the level of production, consumption, investment and employment, the results of our model prove that with the introduction of the RamzRial in parallel with cash balances, the most important factor affecting the transmission mechanisms is the dynamics of transaction cost deviations.
Monetary economy
Hossein Samsami; Parviz Davoodi; Rana Abbasgholi Nezhad Asbaghi
Abstract
One of the factors that change the results of the expansionary monetary policy through the credit channel on the economy is the financial frictions that affected Iran's economy especially in the 2002’s and 2022’s. These frictions are manifested in variables such as capital adequacy violations, ...
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One of the factors that change the results of the expansionary monetary policy through the credit channel on the economy is the financial frictions that affected Iran's economy especially in the 2002’s and 2022’s. These frictions are manifested in variables such as capital adequacy violations, the ratio of nonperforming loans, the ratio of fixed assets to the total assets of banks, and the government's net debt to banks. In this article, with the help of building a macro structural econometric model in the period of 1968-2022, the effect of expansionary monetary policy on the change of each type of financial friction has been investigated and compared with emphasis on the endogeneity of money on Iran's economy. The obtained results show that due to the endogeneity of money, the influence of the central bank's monetary policy on the real sector of the economy has decreased and most of its effect is manifested in nominal variables such as liquidity, inflation rate and exchange rate. In addition, an increase of one standard deviation in the ratio of nonperforming loans reduces the impact of the expansionary monetary policy on the real sector of the economy more than other mentioned financial frictions. After that, the decrease in capital adequacy, the increase in the government's net debt to banks, and the increase in the ratio of fixed assets to total assets are in the next level of importance of reducing the effectiveness of monetary policy.1.IntroductionIran’s economy heavily relies on banks to finance economic entities, emphasizing the crucial impact of monetary policy through the credit channel. However, the effectiveness of monetary policy on the real sector of economy can be impeded by financial frictions. These frictions intervene in financial transactions and may increase the costs associated with obtaining external financing, such as loans, for investors (Farzinvash et al., 2014). Empirical evidence suggests that, despite high liquidity, Iran’s economy has encountered a credit crunch, especially during the period spanning from 2002 to 2022. This credit crunch can be attributed to violations of prudential ratios, including capital adequacy, nonperforming loan ratio, fixed asset ratios to total bank assets, and the government’s net debt to banks.As a consequence of these frictions, banks face resource shortages and resort to borrowing from the Central Bank through overdrafts. This results in an expansion of the monetary base, subsequently increasing liquidity and leading to a rise in the general price level. Consequently, owing to the endogeneity of money in Iran’s economy, the Central Bank lacks an independent monetary policy instrument to effectively achieve its goals. The impact of liquidity on the real sector of economy is limited, with most impact observed in nominal variables and manifested as price increases.In this respect, the present study aims to examine the impact of financial frictions on the effectiveness of expansionary monetary policy through the credit channel, specifically focusing on the endogeneity of money. Additionally, it tries to compare the respective effects of the frictions on the Iranian economy. The analytical perspective ensures the distinctive and innovative aspect of the study.2.Materials and MethodsConcerning the period from 1968 to 2022, a large-scale macroeconometric model was developed based on aggregate supply–aggregate demand frameworks and national income accounting. The research model encompasses various components, including consumption and investment expenditures, government activities, foreign trade, production, money and credit, general price levels, exchange rates, and the balance of payments. Data for constructing the model was sourced from the Central Bank’s Time Series Data Bank, the Central Bank’s balance sheet, (non-)governmental banks balance sheets, the Statistical Centre of Iran, and the World Bank.The model consisted of 28 behavioral equations, 9 connecting equations, and 91 identities. Auto-Regressive Distributed Lag (ARDL) method was used to estimate the model equations, and all equations were concurrently solved through dynamic simulation. The study relied on the criteria such as Root Mean Square Percentage Error (RMSPE) and the Theil index of inequality (U) to test the model’s performance.3.Results and DiscussionIn order to investigate the influence of individual financial frictions on the impact of expansionary monetary policy on Iran’s economy, the study assumed an annual one standard deviation increase in bank debt to the central bank as a monetary policy instrument in each considered scenario. The scenario development period spans five years, from 2018 to 2022, where the baseline trend represents the state of implementing solely expansionary monetary policy while keeping all types of financial frictions invariable in the current state of Iran’s economy.Moreover, in case of one standard deviation alteration in each financial friction during the implementation of expansionary monetary policy, it can be used to classify capital adequacy, nonperforming loans ratio, the government’s net debt to banks, and fixed asset ratios to total bank assets in the scenarios 1, 2, 3, and 4, respectively (see Table 1). Table 1. The average percentage deviation of the simulated values of the important endogenous variables in the examined scenarios from the base simulated values during the period 2018–2022Scenario 4:Increase in the fixed asset ratios to total bank assetsScenario 3:Increase in the government’s net debt to banksScenario 2:Increase in the nonperforming loan ratio Scenario 1:Reduction in capital adequacy of banksVariables-18.63-23.33-24.9-22.13Depth of bank credits-3.16-3.25-3.22-2.86Production capacity utilization rate-5.14-6.14-6.38-5.96Investment-1.82-2.3-2.4-2.24Employment-1.94-2.26-2.36-2.39Total factor productivity-2.84-3.2-3.3-3.23Gross domestic product-3.1-3.49-3.6-3.52Non-oil gross domestic product12.8913.8413.8414.19Changes in inventories19.3731.4235.4236.24Liquidity3.15.185.935.81Inflation rate7.3312.4414.1114.36Exchange rate* Source: Research resultsTable 1 illustrates that the impact of expansionary monetary policy varies across different scenarios examined. Scenario 2 (i.e., the increased ratio of nonperforming loans) impacts both the real and nominal sectors of economy by causing more significant fluctuations in these variables compared to the baseline simulation. Scenarios 1, 3, and 4 hold subsequent degrees of importance in diminishing the effectiveness of monetary policy.4.ConclusionBased on the findings, it can be concluded that the effectiveness of expansionary monetary policy on the real economy weakens the most when the nonperforming loan ratio increases, compared to three other financial friction indicators. Therefore, to mitigate nonperforming loans in banks, the study suggests that economic policymakers focus on controlling inflation rates, exchange rates, fluctuations in gross domestic product, and fluctuations in investment in the real estate sector. The priority should also be given to monitoring the decline in the quality of bank management due to the increase in the ratio of bank credit balance to total volume deposits after deducting the legal reserves. It is also worth noting that the proper implementation of Islamic contracts by banks can significantly contribute to reducing nonperforming loans.
Monetary economy
Abbas Shakeri; Elnaz Bagherpour Oskouie
Abstract
High and continuous inflation in Iran's economy as a structural dilemma has adverse economic, political, and cultural outcomes, and to control the inflation, policymakers should employ appropriate and well-timed policies concuring to the economic structures of the country. Hence, this study points to ...
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High and continuous inflation in Iran's economy as a structural dilemma has adverse economic, political, and cultural outcomes, and to control the inflation, policymakers should employ appropriate and well-timed policies concuring to the economic structures of the country. Hence, this study points to distinguish and analyze the nature of inflation. For this reason, the present study examines the dynamics of the causal relationship between inflation and liquidity as well as the relationship between inflation and exchange rate by applying the continuous wavelet transform approach using monthly data during the years 1982 to 2021 in Iran’s economy. The results indicate: 1. Liquidity does not infulence the inflation rate in the long term and there is a reverse causality (causality from inflation to liquidity) and this result affirms the endogeneity of liquidity in the long term in Iran's economy. 2. The exchange rate growth shocks (from the supply side of the economy) affect inflation, in a way that the exchange rate altogether influences the inflation in both the short and long term.1.IntroductionAmid the last few decades, high and steady inflation has been a serious economic problem in Iran's economy. Empirical evidence suggests that in the years 1995, 1996, 2013, 2014, 2019, and 2020-21, Iran's economy has suffered from heavy and sequentional inflations. However, the perseverance of high inflation, especially since 2020, has turned into a fundamental problem. The main issue about the inflation in our country is not the inflation per se, but the critical status of it has faced development plans with great challenges for many years. Then again during the last decade, the economy tried to control inflation by restricting the growth of the money supply. But it appears that the results come to oppose established recommendations to curb the growth of liquidity. Therefore, the question raised in the present study is whether the high inflation rate in Iran's economy is due to the rise of the money supply.Although the relationship between inflation and liquidity in the economy has been examined in several studies, the significance of inflation and its relation with macroeconomic variables- the broad previous and subsequent link with other variables- exaggerates the study of the relationships among these variables and other macroeconomic variables in different time scales. In this regard, the present study examines the relationship among some key monetary and price variables in the economy (dynamics of the relationship between inflation and liquidity as well as inflation and exchange rate).2.Methodology and MethodsThere are several methods to examine the interrelationships of inflation, exchange rate, and liquidity that are commonly divided into the form of statistical methods as well as model-based methods. But, since the causal relationship between these variables is likely to change over time, so further exploration of those relationships requires techniques that consider the relationship between two variables over time and different time horizons (different friquencies). Unlike most statistical and econometric techniques, the wavelet approach does not require variables to be survivable, nor does it assume linear relationships between them. In contrast to time series techniques, the use of wavelet approaches, especially wavelet coherence and continuous wavelet transform approaches within the framework of the methodology of econophysics (econophysics), opens new horizons in the study of causality in time series, because it shows the possibility of dynamically examining effects at different frequencies by separating it to the short and long term. To this end, the present study, using the continuous wavelet transform approach, examines the dynamics of the causal relationship between inflation and liquidity and the relationship between inflation and exchange rate by applying monthly data during the years 1982:1 to 2020:12 in Iran’s economy.3. Discussion and ResultsGenerally speaking, based on what we've learned regarding the rooting of inflation in the our economy, it can be said that when the inflation rate increases and reaches a level higher than the average inflation (30 to 40 percent), such as when the average inflation rate shows lower figures, other monetary variables cannot be illustrative. Also, regarding the rooting of inflation, it can be said that in recent years, due to the adjustment policy, decrease of oil exports or sanctions, the demand for foreign currency exceeded its supply, and we witnessed instabilities in the exchange rate. Hence, the instability and fluctuations in the exchange rate and its concerned indicators do not exclusively follow monetary conditions.Therefore, the stability of exchange rates leads to the stability of prices and the limitation of monetary follow ups, and the resulting inflation itself causes more changes in the exchange rate in the next period.4. ConclusionIn the current economic situation, the appreciation of the exchange rate is the cause of inflation and high inflation is to a noteable extent the cause of the budget deficit and liquidity growth. Therefore, another factor is the supply side that causes inflation and is not a monetary factor. Therefore, in a situation where the endogenous creative forces of liquidity are active, relying on controlling the amount of money and liquidity as the goal of monetary policy and a solution to curb inflation will not work and will pave the way for speculators and unproductive agents. Therefore, in order to achieve the price stability, it is recommended that the monetary policy maker should a) avoid instant changes in relative and key prices (the most important of which is the exchange rate) and b) control the bank interest rate along with the structural reforms of the banking system in a way that the banking system moves toward optimal allocation of credit resources.
Monetary economy
Elham Kamal; Vahid Taghinezhadomran
Abstract
This paper studies the effect of central bank credibility (CBC) on interest rate from the perspective of fiscal and institutional factors, using a credibility loss index. As some central banks are not successful in channeling the actual inflation towards the announced targets, it seems necessary to investigate ...
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This paper studies the effect of central bank credibility (CBC) on interest rate from the perspective of fiscal and institutional factors, using a credibility loss index. As some central banks are not successful in channeling the actual inflation towards the announced targets, it seems necessary to investigate the impact of central bank credibility on the economic variables and also analyze the fiscal and institutional determinants of central bank credibility. Therefore, using a backward-looking indicator that measures the central bank's performance as the basis for obtaining credibility, this study analyzes the impact of CBC on the interest rate, assuming credibility is endogenous for 17 developing countries during the period 1996-2019. The result indicates that increasing the level of credibility loss positively affects the level of interest rate. In other words, increasing the central bank's credibility or improving its performance reduces the level of interest rate. Since performance is a function of external fiscal and institutional factors, improving the quality of democracy in society and legal implementation of fiscal rules along with the formal adoption of inflation targeting framework not only limits the behavior of governments and establishes financial discipline, but also improves the central bank performance. This will convince economic agents that governments and central banks are committed to their promises.1. IntroductionWhat determines the CBC? How CBC affects the interest rate? To address these questions, we use the backward looking measure of Neuenkirch and Tillmann (2014) which focuses on how the private sector pays attention to the past performance of the central bank when forming expectations. This measure, a credibility loss index, is defined as a gap between the average of past inflation and target inflation. This suggests that the higher the deviation from the target, the higher the credibility loss. To clarify the main drivers of the CBC, Levieuge et al. (2018) argue that there are fiscal and institutional factors, which ultimately affect the level of public’s expectations and attitude in the central bank’s ability to meet its commitment. Besides, Taghinezhadomran and Kamal (2021) investigate that central banks in the developing countries have not performed properly in the convergence of actual inflation towards the target range which could have ramifications on the macroeconomic levels and monetary variables such as interest rates. Accordingly, this paper studies the impact of credibility loss on the interest rate given the endogeneity of CBC for 17 developing countries from 1996 to 2019, using instrumental variables method. The results show that the higher the credibility loss the higher the interest rate. Additionally, establishment of budget-balance rule, the increasing the level of central bank independence and the number of veto players, and also the decreasing the level of central bank holdings of public debt are the main fiscal and institutional drivers of CBC. 2. Method and MaterialFollowing Neuenkirch and Tillmann (2014), we assume that the higher the credibility loss (inappropriate performance of the central bank) the higher the interest rate (Eq. 2). (1) (2)Where stands for the central bank independence index (the turnover rate). The turnover rate is counted by the number of central bank governor changes and denotes the number of veto players. Veto players are defined as individual and collective actors (individual politicians, political parties, and institutions), having the power to block a proposed change in current policies. Besides, their agreement is necessary before policies can be changed. sets the balance-budget rule. is central banks holdings of government debt. represents the nominal interest rate. and are the inflation gap and the credibility loss index, respectively. is the error term (iid). In this paper, we choose the fiscal and institutional variables as instrumental variables. The rationale behind that refers to the higher correlation between the fiscal and institutional variables and the credibility loss index and the lower correlation of fiscal and institutional variables with the dependent variable (interest rate). Since the endogeneity problem occurs when the independent variable is correlated with the error term in a regression model, we use the method of instrumental variables (2SLS) to examine the effect of credibility loss on the interest rate while determining the main influential fiscal and institutional factors. 3. Result and DiscussionThe results in the first stage show that all of the explanatory variables significantly affect the credibility loss index. Specifically, the higher the turnover rate the higher the loss in CBC. In other words, an increase in the turnover rate of the central banker have a negative effect on the performance of the monetary institution and shows the inability of the central bank to fulfill his/her promises. Our result shows that the increased number of veto players negatively affects the credibility loss. This suggests that the more veto players, the more difficult the overturn of central bank independence. The rise of the number of checks and balances could be as a good news to stimulate agents’ expectations as the change of decision to delegate becomes harder, giving to the private sector a greater scope to reduce the expected inflation. The negative effect of rule-based budget on the credibility loss indicates that rules constrain the behavior of governments and convince the public and markets that sovereigns and central banks are committed to the announced targets. The coefficient of sovereign debt holder is also statistically significant and positive. The results in the second stage show that inflation gap and credibility loss will increase the level of interest rate. This means that the higher the deviation from the inflation target the weaker the performance of central bank. In this case, the central bank is forced to increase the interest rate to response to this deviation.4. ConclusionUsing instrumental variables method and in two stages, this paper examined the effect of credibility loss on the interest rate while taking the endogeneity of CBC into account for 17 developing countries from 1996 to 2019. The positive impact of credibility loss on the interest rate suggests that the higher the deviation of the average of past inflation from the target, the higher loss in CBC today. This weak performance, will force the central bank to set a higher interest rate. The main reason behind that refers to the external factors such as fiscal and institutional factors, as our results suggest. In particular, the performance of the central bank is an outcome of fiscal and institutional factors, affecting the extent of interest rate. These findings indicate that simply adaption of inflation targeting framework does not improve the performance of the central bank. Rather, the legal implementation of fiscal rules, the lower fiscal dominance, and also the number of veto players could stabilize expectations and convince the public that governments and central banks are committed to their promises.
Monetary economy
Seyed Saleh Akbar Mousavi; Behzad Salmani
Abstract
The main purpose of this study is to identify the determinants of banking crisis losses for 49 sample countries over the period 1980-2019. In this regard, two sub-purposes are pursued. In the first preliminary step, we identify and date episodes of banking crises for 49 countries. The graphical analysis ...
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The main purpose of this study is to identify the determinants of banking crisis losses for 49 sample countries over the period 1980-2019. In this regard, two sub-purposes are pursued. In the first preliminary step, we identify and date episodes of banking crises for 49 countries. The graphical analysis of crises showed that about half of the crises were occurred between 2008-2012 in which the share of high-income countries was higher than other country groups. Then, in the second preliminary step, we used the Hodrick-Prescott filter to extract different trends from countries' GDPs to calculate four alternative measures of real output losses. The investigated output losses showed that Angola and Greece had the highest and lowest losses among the four types of losses, respectively. Finally, to achieve the main purpose, we use the Poisson quasi-maximum likelihood (PPML) method to estimate model. The model was estimated without and with currency crisis variable. Our findings show the occurrence of a currency crisis is effective in intensifying output losses following banking crises. Also, the variables of inflation, bank credit to GDP, credit-to-GDP gap, public debt/GDP, with a positive effect and variables of financial openness, discretionary government spending and central bank assets with a negative impact, are important factors in output losses of banking crisis. Therefore, we recommend that the mentioned variables be considered in banking crisis management.
Monetary economy
Hooman Karami Khoramabadi; Alireza Erfani; Hosein Tavakolian
Abstract
This paper investigates the effectiveness of monetary policy in recession and expansion periods of business cycles in Iran. It uses the distribution of price changes over time using micro-data of producer and consumer price indices from March 2004 to March 2007 and March 1990 to March 2017. Results show ...
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This paper investigates the effectiveness of monetary policy in recession and expansion periods of business cycles in Iran. It uses the distribution of price changes over time using micro-data of producer and consumer price indices from March 2004 to March 2007 and March 1990 to March 2017. Results show that the observed distribution price changes at the producer and consumer levels change significantly over time. Whereas price flexibility (or, similarly, price stickiness) is closely related to the impact of monetary policy, the variable distribution of price changes over time suggests that the effectiveness of monetary policy should also change over time. We estimated the related parameters using the Ss model and the observed facts from the distribution of price changes, the price flexibility index, which shows how prices react to a monetary policy shock. The correlation coefficient and regression analysis results showed that the price flexibility index is counter-cyclical; this means that during periods of economic recession, the index of price flexibility increases. Therefore, the impact of monetary policy on real output decreases. However, during periods of economic expansion, the impact of monetary policy increases.
Monetary economy
Hoseinali Haghi; Mohammadreza Bagherzade; Mojtaba Tabari; Zabihollah Gholami Rudi
Abstract
The necessity to create stable and transparent economic conditions has made combating money laundering a universal policy on the agenda of parliaments and governments by all countries. This is currently the specific issue of the Iran monetary and banking system. In this regard, the infrastructural approach ...
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The necessity to create stable and transparent economic conditions has made combating money laundering a universal policy on the agenda of parliaments and governments by all countries. This is currently the specific issue of the Iran monetary and banking system. In this regard, the infrastructural approach includes all effective dimensions of international anti-money laundering mechanisms such as Basel Committee indices and recommendations of the Financial Action Task Force, and the experiences of other countries show that applying factors of this approach can enhance Iran monetary and banking system internationally and decreases money laundering risk. In order to identify the challenges in this area and reach a model which includes a set of infrastructural factors in fighting money laundering, this study uses qualitative and quantitative parts; in qualitative part, the criteria raised by experts through face-to-face interviews and multi-stage coding, content analysis, and Fuzzy Delphi method, and in quantitative part, the criteria raised by questionnaire and factor analysis technique, and the RMSEA index have been used for fitting the model. Based on international guidelines, the proposed infrastructural model consists of functional, contextual, and structural dimensions and findings indicate that a systematic application of the proposed model improves the efficiency of anti-money laundering system and helps optimal management of anti-money laundering challenges of banks. In this regard, the relative weights of legal, political, geopolitical, and risk-taking components of the structural dimension highlight the importance and necessity of focusing on this dimension and its components of the Iran banking system.
Monetary economy
Seyed Saleh Akbar Mousavi; Behzad Salmani; Jafar Haghighat; Hossein Asgharpour
Abstract
The main purpose of this study is to estimate the probability of banking crisis using the second generation of early warning systems (logit models), for 13 selected high-middle income countries over the period of 1980-2016. In this regard, two types of logit models; binomial and multinomial, are estimated. ...
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The main purpose of this study is to estimate the probability of banking crisis using the second generation of early warning systems (logit models), for 13 selected high-middle income countries over the period of 1980-2016. In this regard, two types of logit models; binomial and multinomial, are estimated. The results of estimated binomial logit model show that three leading indicators of the crisis are broad liquidity ratio, stock price index and inflation, which are the main causes of crisis in the studied countries. These variables account for about 17 percent of the probability of a banking crisis. Then, to avoid post-crisis bias, the multinomial logit model is estimated. The empirical results confirm that above three leading indicators are warning. Also, among the above three variables, only stock price index variable with a probability of 12.68%, causes the economy to exit the banking crisis and change its situation from the crisis/recovery period to the tranquil period. The multinomial logit model exhibit significantly better in-sample predictive abilities than the binomial logit model.
Monetary economy
Mahshid Shahchera
Abstract
Since moral hazard in behaviors of banking system may jeopardize efficiency of debt mechanisms to fund rising, it is important to examine the empirical and theoretical evidences of moral hazard in the Iranian banking system. Risky behavior of banking system is caused by the asymmetric information problems ...
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Since moral hazard in behaviors of banking system may jeopardize efficiency of debt mechanisms to fund rising, it is important to examine the empirical and theoretical evidences of moral hazard in the Iranian banking system. Risky behavior of banking system is caused by the asymmetric information problems between creditors and central bank. This paper considers the simultaneous effects between changing risk and leverage that justifies existence of moral hazard in the Iranian banking system. To do so, we use dynamic panel data model for the period 2006-2019 in Iranian banking system. According to the obtained results, there is a significant positive relationship between the level of risk and leverage. This relationship implies the existence of moral hazard that can be caused unsuccessfully performance of central bank in supervision and supporting in the banking system.
Monetary economy
Abolfazl Shahabadi; Razieh Davarikish; Mahdi Jafari
Abstract
The significant difference between the growth rate of liquidity and the rate of economic growth creates a kind of inflationary potential in the economy. Part of this difference occurs as overt inflation, but the other part will remain latently as potential inflation in the economy. Potential inflation ...
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The significant difference between the growth rate of liquidity and the rate of economic growth creates a kind of inflationary potential in the economy. Part of this difference occurs as overt inflation, but the other part will remain latently as potential inflation in the economy. Potential inflation should have appeared in the economy but was delayed, and this could cause inflation shock and inflationary uncertainty in the country's economy. Therefore, potential inflation is one of the main problems of any country that the fear of bursting and its occurrence causes instability and economic turmoil. The uncertainty resulted leads to huge bewilderment of investors and to reduced investment and employment. Residual factor and institutional quality is one of the factors affecting potential inflation. Because, with the improvement of the Residual factor, the appropriate institutional quality and the high rule of law and order, the concerns related to the growth of liquidity are eliminated. In this case, the growth of liquidity is commensurate with the economic growth and more growth in liquidity than economic growth is prevented. The purpose of this study is to investigate the effect of residual factor and institutional quality on the potential inflation of selected countries rich in natural resources for the period 1996-2019 using the fully modified ordinary least squares (FMOLS) method. The results of this study indicate that the variables of residual factor, institutional quality and exchange rate have a negative and significant effect on potential inflation. Also, according to the research results, the variable of government spending has a positive and significant effect on potential inflation.
Monetary economy
Soheil Roudari; Masoud Homayounifar; Mostafa Salimifar
Abstract
In this research, the role of nominal exchange rate volatility and business cycles on the banking nonperforming loans was investigated by using Markov-Switching model during 2005-2018 using seasonal data. Business cycles were extracted from GDP by using the Hodrick Prescott filter. Also, the wavelet ...
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In this research, the role of nominal exchange rate volatility and business cycles on the banking nonperforming loans was investigated by using Markov-Switching model during 2005-2018 using seasonal data. Business cycles were extracted from GDP by using the Hodrick Prescott filter. Also, the wavelet transform model was used to extract nominal exchange rate fluctuations. The results showed that the exchange rate volatility varies in different periods of time and in longer period of time, the foreign exchange rate volatility has a greater negative and significant effect on nonperforming loans of banking network. It shows a dependence of government on banking network. Also, the impact of business cycles depends on the nonperforming loans regime. The sustainability of low regime is bigger than high regime. The results also show that the impact of value added of different sectors of economy varies in different regimes of nonperforming loans. These results indicate that banking system should take into account the value added of different sectors of economy and nonperforming loans regimes which could decrease nonperforming loans.
