The Relationship among Stock Market, Bank Deposits and Foreign Exchange Speculation: An Emphasis on the Role of Interest Rate in Iran’s Economy

Sadeghi, Abdorasoul; Marzban, Hossein; Samadi, Ali Hossein; Azarbaiejani, Karim

doi:10.22054/ijer.2021.55948.910

Document Type : Research Paper

Authors

¹ PhD Student, Economics, Shiraz University, Shiraz, Iran

² Associate Professor, Member of Economic Faculty, Shiraz University, Shiraz, Iran

³ Professor, Member of Economic Faculty, Shiraz University, Shiraz, Iran

⁴ Professor, Member of Economic Faculty, Isfahan University, Isfahan, Iran

https://doi.org/10.22054/ijer.2021.55948.910

Abstract

The unstable state of macroeconomic indicators such as gross domestic product (GDP), investment, and inflation rate, as well as the disproportionate level of high volume of cash held by private individuals versus the low volume of liquidity in manufacturing firms, have always been a significant problem in Iran's economy. In this respect, the relationship among the stock market, bank deposits, and speculation in the foreign exchange market, and also, the central bank's role in directing liquidity between them to affect the macroeconomic indicators are important. The current study evaluates this subject for 1988–2018 using a system of simultaneous equations and the three-stage least squares (3SLS) method. The findings indicate that there has been a significant negative relationship among the stock market, bank deposits, and foreign exchange speculation. The stock market and bank deposits have had a significant positive effect on investment and GDP, and in contrast, foreign exchange speculation has shown a significant negative impact. Conversely, bank deposits have negatively impacted the consumer price index (CPI), whereas foreign exchange speculation has shown a substantial direct effect. Finally, despite the existence of a significant negative relationship between three financial markets in the Iranian economy confirmed by the obtained results, the central bank has forfeited a considerable portion of its potential effectiveness in directing liquidity between parallel financial markets to affect nominal and real economic indicators due to interest rate repression.

Keywords

20.1001.1.17260728.1400.26.87.2.7

Main Subjects

Macroeconomics

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The Relationship among Stock Market, Bank Deposits and Foreign Exchange Speculation: An Emphasis on the Role of Interest Rate in Iran’s Economy

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Volume 26, Issue 87 - Serial Number 87July 2021Pages 41-76

Volume 26, Issue 87 - Serial Number 87
July 2021
Pages 41-76