Authors
1
Phd student Department of Economics, Lorestan University, Lorestan, Iran.
2
Assistant Professor, Department of Economics, Lorestan University, Lorestan, Iran.
3
MSc, Faculty of Economics, University of Kharazmi, Tehran, Iran.
Abstract
Introduction and Objectives: The banking system, as one of the main focal points of the economy, plays a vital role in financing and supporting economic growth. In Iran, the banking system’s imbalance, resulting from the mismatch between assets and liabilities, is a major challenge. This imbalance can lead to the creation of excess liquidity, the management of which has been a significant economic challenge in recent decades. Economic policymakers often cite the goal of creating liquidity as achieving high economic growth, but how it is created and managed can yield different results. This research uses data related to the monetary base and the ARDL approach to investigate the impact of banking imbalance on Iran’s economic growth rate. The main objective of this study is to analyze how banks’ debt to the central bank and other related variables affect economic growth. The results of this research can help policymakers make better decisions to manage liquidity and improve economic growth.
Methodology: This study examines the impact of banking system imbalance on Iran’s economic growth rate using the Autoregressive Distributed Lag (ARDL) method. For this purpose, data on key variables, including the monetary base, banks’ debt to the central bank, government debt to the central bank, and the central bank’s illiquid and frozen assets, were collected from 1369 to 1401 (Iranian calendar). This period is important because it includes the post-Iran-Iraq war era and various economic periods, allowing the examination of the effects of banking imbalances under different conditions.
The ARDL model was used due to its ability to investigate both long-term and short-term relationships between variables. First, the stationarity of the variables was examined using appropriate tests such as the Dickey-Fuller test. After confirming the stationarity of the variables, the ARDL model was evaluated, and the model parameters were estimated. After estimation, unit root tests and long-term patterns were examined to determine how banking imbalances affect economic growth quantitatively. In addition, simulations were performed to investigate the effects of imbalance shocks on economic growth. This methodology allows for a deeper analysis of the relationships between banking system imbalance and Iran’s economic growth rate.
Results: The findings of this research show that the impact of the banking system imbalance on Iran’s economic growth rate is statistically significant. Specifically, banks’ debt to the central bank had a positive and significant effect on the economic growth rate in some lags, although in other cases, a negative and significant effect was observed. These results indicate that the impact of banking imbalance is variable and depends on the prevailing economic conditions.
Other variables examined, including government debt to the central bank and illiquid assets, had a negative and significant impact on economic growth. In other words, heavy debt and poor asset quality have created major problems for the country’s economic growth. The assessments showed that banking imbalances have led to limiting the banks’ ability to create credit and finance economic programs, and this has fueled the lack of financing for important production and service projects.
Discussion and Conclusion: The results of this research emphasize the dual impact of banking system imbalance on Iran’s economic growth rate. On the one hand, banks’ debt to the central bank can act as a source of financing to advance projects and increase production. Still, on the other hand, an increase in this debt can lead to increased financial system risk and reduce the banks’ ability to provide loans to various sectors of the economy. The imbalance between banks’ assets and liabilities, by putting pressure on liquidity, can also lead to financial crises that ultimately negatively impact economic growth.
Considering that banking imbalances affect Iran’s economic performance, policymakers should focus on managing their effects. Monetary policies need to be implemented more carefully, and the lending process of banks and the quality of their assets need to be closely monitored. Finally, it is suggested that the government and the central bank, by designing and implementing effective policies to reform the financial structure and reduce imbalances, create the necessary conditions for sustainable economic growth.
The results of this research can be used as a basis for future research on banking system imbalances and economic policies in Iran and contribute to a deeper evaluation of the interaction between the banking system and economic growth.
JEL Classification: C22, E58.
Keywords
