Monetary economics
Ashkan Makipour; Ahmad Salahmanesh; Ebrahim Anvari; Leyla Reshnavadi
Abstract
In recent years, with the expansion of financial institutions such as investment funds, non-bank financial and credit institutions, and financing funds, a sector has been formed in Iran's economy that performs its duties in parallel with the standard banking sector, which is known as shadow banking. ...
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In recent years, with the expansion of financial institutions such as investment funds, non-bank financial and credit institutions, and financing funds, a sector has been formed in Iran's economy that performs its duties in parallel with the standard banking sector, which is known as shadow banking. The formation of such a structure in the economy can be considered a part of the monetary transfer mechanism and affect macroeconomic variables. This study shows that shadow banking is growing rapidly in Iran and due to lack of activity within the framework of Central Bank regulations, it can reduce the effectiveness of monetary policies. In this study, in order to model the shadow banking sector, a Dynamic Stochastic General Equilibrium (DSGE) model has been used considering different sectors of the economy during the period of 2010-2019. The results of the simulation show that the effect of the shadow banking sector on macroeconomic variables is similar to the effect of the standard banking sector, which indicates its impact on the Iranian economy. Also, the simulation of shocks related to interest rates shows that interest rate developments in the shadow banking sector have the same function as the conventional monetary transfer mechanism in the standard banking sector. Therefore, developments in this sector can significantly affect the future direction of economic variables
Monetary economics
Zohreh Esksndaripour; Marziyeh Esfandiari; Nazar Dahmardeh; Mohammad Hasan Fotros
Abstract
The role and importance of the banking system as the primary source of financing for businesses is necessary to investigate the factors affecting the profitability of this sector. Therefore, this research uses a computable general equilibrium model (RDCGE), the effect of exchange rate shock, crude oil ...
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The role and importance of the banking system as the primary source of financing for businesses is necessary to investigate the factors affecting the profitability of this sector. Therefore, this research uses a computable general equilibrium model (RDCGE), the effect of exchange rate shock, crude oil price, stock price index, and government budget on Iran's banking system profitability. For this purpose, the social accounting matrix (SAM) of 2011 and the Input-Output table of 2016 were used to analyze the twelve design scenarios and the profitability of the banking system in response to shocks 2, 5, and 10 percent in the exchange rate, crude oil price, stock price index, and government budget are evaluated. The findings reveal that the exchange rate and crude oil prices negatively affect banking system profitability, while the total stock price index and government budget have positive effects. The funding comparison shows that in different scenarios, the shocks of the exchange rate, oil price, stock market, and government budget, respectively have the most effect on bank profitability. thus , appropriate use of the national development fund and government support for the stock market are effective for reducing exchange rate shock and crude oil prices and controlling the consequences of these shocks .
Monetary economics
Mahboobeh khadem Nematollahy; Teymour Mohammadi; Abbas Shakeri; Ali Asghar Salem
Abstract
This study examines the impacts of demand, supply, exchange rate, and unconventional monetary policy (UMP) shocks on GDP, inflation, exchange rate, and interest rate in Iran. Using sign-restriction, short-run zero-restriction, and long-run zero-restriction inside vector autoregressive frameworks, we ...
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This study examines the impacts of demand, supply, exchange rate, and unconventional monetary policy (UMP) shocks on GDP, inflation, exchange rate, and interest rate in Iran. Using sign-restriction, short-run zero-restriction, and long-run zero-restriction inside vector autoregressive frameworks, we constructed three- and four-variable models incorporating real interest rate, real exchange rate, GDP, and inflation data spanning from 1961-Q1 to 2021-Q1. We executed a bootstrap resampling technique that satisfies the signs on loops. Our findings indicate that an unconventional monetary policy, particularly a negative monetary policy shock, results in an increase in GDP and a reduction in the real exchange rate, so significantly reducing inflation. An unconventional monetary policy may be implemented to stimulate the economy. Consequently, the novel combined approach facilitates the identification of unconventional monetary policy shocks and can be broadly applied to other economic shocks. The primary question of the study is whether UMP shocks in Iran can be estimated and identified through zero and sign restrictions. The study aims to identify UMP shocks by regressing a collection of variables pertinent to the decisions of the Central Bank of Iran (CBI).Introducing UMP in emerging market and developing economies (EMDEs) such as Iran aims to attainin their output and inflation targets
Monetary economics
Reza Taheri Haftasiabi; Parviz Piri; Ameneh Naderi; Nashmil Esmaily
Abstract
This study examines the role of bank credit and macroeconomic variables in predicting financial crises in Iran. Given the importance of predicting and managing financial crises in the Iranian economy, this study aims to identify the key factors and build accurate models to predict these crises.Panel ...
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This study examines the role of bank credit and macroeconomic variables in predicting financial crises in Iran. Given the importance of predicting and managing financial crises in the Iranian economy, this study aims to identify the key factors and build accurate models to predict these crises.Panel data for the period 2006 to 2022 was used for this study. Advanced machine learning techniques and neural networks were used to analyse the data and create predictive models. These approaches make it possible to examine complex relationships between variables and make more accurate predictions.The results of this study show that the bank debt service ratio, the slope of the yield curve and the investments made are the most important factors in predicting financial crises in Iran. Bank loans also play a minor role in these predictions. The models used, especially neural networks and random forests, have shown high accuracy in predicting financial crises. This study has important implications for economic and financial policies in Iran. The results emphasise the need to review debt management policies, improve the investment environment, and adjust monetary and credit policies more precisely. These findings can help policy makers and economic managers to make more informed decisions and prevent future financial crises.
Monetary economics
Hosein Samsami; Hesam Hasanpour; Mohammad Ali Nowjavan
Abstract
As a result of the accumulation of fictitious assets in the bank balance sheet, the banking system has been faced with insolvency in recent years which has had grave impacts on both the money and real sectors. This study aims to investigate the causes of the increase in liquidity through the creation ...
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As a result of the accumulation of fictitious assets in the bank balance sheet, the banking system has been faced with insolvency in recent years which has had grave impacts on both the money and real sectors. This study aims to investigate the causes of the increase in liquidity through the creation of fictitious assets and to examine the effects of these assets on macroeconomic variables, which has not been investigated in other studies. Using a pattern of structural macro-econometric and the ARDL method, this paper investigates the impact of removing fictitious assets from the bank balance sheet on the money supply and other macroeconomic variables in Iran from the first season of 2006 to the fourth season of 2022. The designed macro-econometric pattern includes 8 behavioral equations and 7 identity equations. Two scenarios have been developed in this paper: The first scenario surveys the impact of effective money (the aggregate money minus fictitious assets) on macroeconomic variables. The second scenario examines the impact of aggregate money on macroeconomic variables. The findings indicate that the existence of fictitious assets in the bank balance sheet causes an increase in the money supply and reduces the quality of money. However, fictitious assets have no impact on the real sector and the effective money’s influence on macroeconomic variables such as production, investment, employment, and consumption is more than the aggregate money’s impact on these variables. Also, the results show that ineffective money merely increases the price levels.
Monetary economics
Fariba Osmani; Ali Cheshomi; Narges Salehnia; Mohammad Taher Ahmadi Shadmehri
Abstract
In recent years, Iran's economic problems have increased inflation and subsequently affected fluctuations in consumption. Therefore, this research analyzed the impact of positive and negative inflationary shocks on consumption during the monthly period from April 2010 to March 2022 with the NARDL approach. ...
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In recent years, Iran's economic problems have increased inflation and subsequently affected fluctuations in consumption. Therefore, this research analyzed the impact of positive and negative inflationary shocks on consumption during the monthly period from April 2010 to March 2022 with the NARDL approach. This study considers GDP per capita, nominal interbank interest rate, and unofficial exchange rate variables as control variables. The results, supporting Duesenbery’s ratchet effect, show that positive and negative inflation shocks have an asymmetric effect on per capita consumption. One unit of positive inflation shocks growth causes a 0.012 decrease in consumption, and one unit of negative inflation shock causes a 0.049 increase in consumption. This means that there is always excess demand in the market; on the one hand, it is an expression of consumerism in Iranian society. Positive changes in real GDP increase real consumption by a coefficient of 0.733, and negative changes in GDP cause a decrease in consumption by a coefficient of 0.314. Empirical results also discovered long-run asymmetric effects between interest rates and consumption, so with one unit increase in interest rate, consumption decreases by about 0.133. With one unit decrease in interest rate, consumption increases by about 0.117. This study suggests policymakers should prioritize low inflation and economic growth goals in implementing monetary policies to increase household consumption and well-being.
Monetary economics
Roozbeh Balounejad Nouri; Amir Ali Farhang
Abstract
the relationship between oil revenue, exchange rate, and M2 on the CPI and PPI, over time of 2005:1-2022:1, was investigated in Iran with QARDL method used. The results showed that, in the short run, all the variables had an asymmetric effect on the CPI and the PPI. oil revenues, in the long run, from ...
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the relationship between oil revenue, exchange rate, and M2 on the CPI and PPI, over time of 2005:1-2022:1, was investigated in Iran with QARDL method used. The results showed that, in the short run, all the variables had an asymmetric effect on the CPI and the PPI. oil revenues, in the long run, from the quantile of 0.05 to the median, the impact of the variable on the inflation would be increased, and then its impact would be decreased. also, in the long run, the effect of the increase on the PPI is greater than the consumer price index. In the long run, the effect of exchange rates on the CPI and the PPI was nonlinear while being symmetric. because from the quantile of 0.2 to 0.8, its effect proportionally increased and then decreased. also, regarding the M2, the results showed that this variable on the CPI and the PPI had an asymmetric effect, in the short run. in this way, from the middle quantile to the quantile of 0.9, its effect was positive and significant, and in the long run, the results confirmed its positive effect on inflation in all quantiles; although, its effect on the PPI was asymmetric.
Monetary economics
Ali Cheshomi; Fariba Osmani
Abstract
Despite the recession in global financial markets, the Tehran stock Exchange experienced significant growth during the COVID-19 outbreak. Therefore, this article tries to solve this puzzle by analyzes the effect of three Coronavirus waves on the total index of Tehran stock Exchange, its sub-indices, ...
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Despite the recession in global financial markets, the Tehran stock Exchange experienced significant growth during the COVID-19 outbreak. Therefore, this article tries to solve this puzzle by analyzes the effect of three Coronavirus waves on the total index of Tehran stock Exchange, its sub-indices, and the different industries with daily data of Iran and the regression method with multiple breakpoints. The results show that each wave of COVID-19 have different effects on the stock market. COVID-19 in the first wave had a negative effect on the index of industries such as refined petroleum, chemical, Metals and transportation but had a positive effect on industries such as medicine and food. But in subsequent waves, response of different industries to the new pandemic is complicated for two reasons. First, the nominal exchange rate has positive and significant effect on main industries such as motor mehicles, banks, refined petroleum, metals and chemical (which have a considerable weight in the Tehran Stock Exchange), can show the positive trend of the index, especially in the first and second waves of the COVID-19. Second, the government's manipulatian in raising the stock prices of these main industries to finance its budget deficit caused the Tehran Stock Exchange index to move in the opposite direction in some periods in response to the Corona virus.
Monetary economics
Elham Kamal; Vahid Taghinejadomran
Abstract
This paper studies the main fiscal determinants of central bank credibility (CBC) from 1990 to 2014. Covering 25 inflation-targeting (IT) economies, we mainly focus on sovereign debt holders and fiscal rules since adopting the IT framework. As the CBC indicator is highly concentrated in the right tail ...
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This paper studies the main fiscal determinants of central bank credibility (CBC) from 1990 to 2014. Covering 25 inflation-targeting (IT) economies, we mainly focus on sovereign debt holders and fiscal rules since adopting the IT framework. As the CBC indicator is highly concentrated in the right tail of the distribution, the mean-based approaches are incapable of unearthing the fact that the effect of fiscal factors may be asymmetric across the distribution of the credibility index. In departing from the problem, we use a quantile regression method to estimate parameters over the entire conditional distribution of CBC. The asymmetric response using the quantile regression is state-dependent and conditional on the credibility distribution. Having provided a comprehensive survey on the fiscal factors potentially related to the credibility in the literature, we find that fiscal rules are almost prominent at the lower quantiles while debt holders' composition is strongly significant at the upper tails of CBC distribution. These findings are further supported by the slope equality tests, discussed in Koenker & Bassett (1982). These results could be attributed to the more sensitivity of the private sector expectations to the debt holders’ composition. Therefore, central bankers could reduce public expectations by taking into account the non-linear impact of fiscal factors on their credibility.
Monetary economics
Nasrin Mansouri; Behrouz Sadeghi Amroabadi
Abstract
This study has investigated the effect of Central Banks transparency and independence on productivity growth during 1981–2018 in Iranian economy. Transparency and independence of central bank were measured by Dincer and Eichengreen index and Cukierman index respectively. The variables in this study ...
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This study has investigated the effect of Central Banks transparency and independence on productivity growth during 1981–2018 in Iranian economy. Transparency and independence of central bank were measured by Dincer and Eichengreen index and Cukierman index respectively. The variables in this study which are in annual form are central bank transparency, central bank independence, GDP growth, productivity growth, inflation rate and free trade. Auto-Regressive Distributed Lag (ARDL) method was used for model estimation. The coefficient of the error term is negative, statistically significant and equal to -0.308. It can be concluded that 30% of the short-run disequilibrium is adjusted to achieve long-run equilibrium. The results show that the transparency of the central bank has a positive effect and the coefficient is equal to 0.36 on productivity growth in the short-run, but it is effective on productivity growth in the long-run equal to 1.08. In the short-run, the independence of the central bank has a negative and significant effect on productivity growth equal to -3.09, but in the long-run the effect of this variable is positive and equal to 1.09.
Monetary economics
Mohammad Feghhi Kashani; Majid Omidi
Abstract
This paper is an endeavor towards investigating the potential role of deposit market structure as a distinct channel for (monetary, fiscal, and regulatory) policy transmission mechanism. In doing so, we have developed the core idea in a rational expectation partial equilibrium setup incorporating the ...
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This paper is an endeavor towards investigating the potential role of deposit market structure as a distinct channel for (monetary, fiscal, and regulatory) policy transmission mechanism. In doing so, we have developed the core idea in a rational expectation partial equilibrium setup incorporating the possibility of contagion risk in the banking system. This has enabled us to build up more sensible analytical findings within a tractable structure which is capable of making diverse equilibria spotted in some empirical evidence. The setup/paper lays down conditions under which one could expect Nash equilibria involving, inter alia, “limited price war”, “deposit rates rat race”, “bank run”, and “systemic banking crisis” followed by incidents of “banking panic”. This multiplicity in equilibria is the result of interaction between the deposit market structural characteristics and policy commands due to externalities originating from strategic complementarity/substitution among the rivalry banks in the market. Further the paper explores the allocation and stabilization efficiency implications in terms of conceivable equilibria for deposit rates, deposit market share, expected net returns, expected markup, and the level of expected effort of banks operating in the banking system with an emphasis on the role of equity capital in between.
Monetary economics
Ali Afzali; Ali Taiebnia; Mohsen Mehrara
Abstract
Credit is the basis for financing and stimulating investments. However, excess credit can be the source of systemic risks and financial crises. In this paper, using Iran’s credit data from 2000 to 2019, the Basel credit gap was calculated as a recommended indicator for measuring excessive credit. ...
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Credit is the basis for financing and stimulating investments. However, excess credit can be the source of systemic risks and financial crises. In this paper, using Iran’s credit data from 2000 to 2019, the Basel credit gap was calculated as a recommended indicator for measuring excessive credit. We perceive that in the years in which the economy is suffering from currency overvaluation; for example, from 2005 to 2011, excess credit is noticeably visible. Moreover, in periods with a fair exchange rate, for instance, from 2000 to 2004, no excess credit was observed. Using capital buffers is an essential regulatory policy to reduce the risk of excess credit. So, the counter-cyclical capital buffer was calculated for all these periods. We also found that Basel’s credit gap has good power in predicting exchange crises in Iran. It seems that the root cause of excessive credit and foreign currency jumps should be sought in the exchange rate-based stabilization plan in Iran (exchange rate anchor). Nonetheless, policymakers can reduce the probability and severity of crises by strengthening the bank credit sector’s regulatory systems and using the proposed buffers.
Monetary economics
Esmaeil Jafarimehr; bahram sahabi; Hassan Heydari
Abstract
Recent financial literature argues that there are gender differences between men and women, impacting financial decision making and performance. This paper, using data related to micro-loans of an Iranian private (commercial) bank between 2012 and 2018, investigates the effects of the characteristics ...
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Recent financial literature argues that there are gender differences between men and women, impacting financial decision making and performance. This paper, using data related to micro-loans of an Iranian private (commercial) bank between 2012 and 2018, investigates the effects of the characteristics of the members of the branch credit committees (BCCs), especially gender, on loan quality. Because, the dependent variable (loan quality) is a discrete ordinal variable and based on the Brant test’s result the proportional odds assumption was violated, the generalized ordinal logit model was used. The results of this paper show that increasing the presence of women in BCC improves the quality of micro-lending. Based on the literature and related studies, a potential explanation for these results is that increasing the number of women in the BCC improves the compliance of the decision-making and lending processes with the credit guidelines and recommendations, increases the BCC risk aversion, and reduces the agency problem by improving monitoring in the BCC. Moreover, the results also show that the quality of micro-lending management by BCCs with a higher average age is poorer than that of a younger BCC, and the higher education of the BCC members improves micro-lending quality.
Monetary economics
Vahideh Sotoudeh Mollashahi; Mohammad Talebi; Mohammad Ali Rastegar; Ramin Mojab
Abstract
After the financial crisis of 2007-2009, in which liquidity problems led to insolvency and consequently the bankruptcy of many large banks and financial institutions such as Lehman Brothers, Basel Committee on Banking Supervision introduced liquidity requirements for the most part to reduce the possibility ...
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After the financial crisis of 2007-2009, in which liquidity problems led to insolvency and consequently the bankruptcy of many large banks and financial institutions such as Lehman Brothers, Basel Committee on Banking Supervision introduced liquidity requirements for the most part to reduce the possibility of bank insolvency caused by liquidity shocks. This research develops an agent-based model of a banking system to be used to analyze the impact of the liquidity requirements on the solvency position of banks. The model devises a banking system with 12 heterogeneous banks in which banks perform their traditional activities namely taking deposits and making loans. Banks can fulfill their liquidity needs by engaging in interbank lending, selling their securities, and using central bank lending assistance. The model aims to study the behavior of different banks in response to imposing liquidity requirements. This model is calibrated using the data of Iranian listed banks during 2018-2020. Liquidity requirements are measured using liquidity coverage ratio, and the solvency position of a bank is measured using the capital adequacy ratio. The results of the simulations demonstrate that as liquidity requirements increase, the solvency position of some banks improves, some banks deteriorate, and some remain unchanged. Regarding this reaction among other various factors, profitability, inflow, and outflow of liquidity, and finally, the outflow rate parameter play an essential role.
Monetary economics
Abdulhamid Khosravi; Hossein Marzban; Jaafar Ghaderi; Parviz Rostamzadeh
Abstract
In this study, we design a structural macro model for Iran economy in which there is a dual exchange rate regime, namely, official (fixed) and unofficial (floated) rates. The official rate determined by the central bank whereas unofficial rate set in the free market. The structural parameters of the ...
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In this study, we design a structural macro model for Iran economy in which there is a dual exchange rate regime, namely, official (fixed) and unofficial (floated) rates. The official rate determined by the central bank whereas unofficial rate set in the free market. The structural parameters of the designed model is estimated using quarterly data in the 1991- 2019 period, and Bayesian method. The main finding of this paper is that establishing a dual exchange rate regime cannot prevent the negative effects of exchange rate dynamics on macro variables. Therefore, it is better to abandon this strategy and instead, central bank put forward optimal respond to exchange rate dynamics. To do this, we derive an optimal policy rule for the central bank and show that the best policy is assigning equal weights to inflation rate and exchange rate in loss function and an active respond to both inflation rate and exchange rate in the policy rule.
