:: Volume 11, Issue 2 (Spring 2016) ::
J. Mon. Ec. 2016, 11(2): 173-191 Back to browse issues page
The Role of Unbalanced Balance Sheet of Banking System in Creating the Puzzle of Interest Rate, Inflation and Liquidity Growth: Evidence from Iran
Ahmad Badri1, Hamid Zamanzadeh 2
1- University of Shahid Beheshti, Tehran, Iran
2- Monetary and banking Research Institute, Tehran, Iran
Abstract:   (843 Views)

The analysis of macroeconomic variables for current situation in Iran indicates a Conundrum. Solving this puzzle is vital for Central Bank of Iran in order to choose an appropriate approach for monetary policy and banking supervision. Increase in liquidity growth rate, significant decrease of inflation rate and interest rate rigidity are the three sides of this puzzle. This study designs an innovative model for connecting the microeconomy of banks with macroeconomy, indicating a solution for mentioned puzzle. Accumulation of fictitious and frozen assets in the assets side of banking system balance sheet makes an unsound flow of liquidity which is partly impacted by fictitious assets of banking system and it is called unsound Liquidity. This situation shows the reality that is financially and economically unbalanced balance sheet of banking system and if these balance sheets seem balanced, is just because deployment of false accounting methods. In fact, quality of liquidity is impacted by reduction of the quality of banking system assets and despite high liquidity growth, this lead to reduction of inflation rate and also caused banks to resist against the reduction of interest rate. The adjusted long run equation of quantity theory of money has estimated in a vector error correction model (1996-2016). The results confirm the direct effect of quality of liquidity on inflation.

JEL Classification: C32, E5, M4


Keywords: Unbalanced Balance Sheet, Liquidity, Interest Rate, Inflation and Accounting
Full-Text [PDF 524 kb]   (295 Downloads)    
Type of Study: Research | Subject: Economics
Received: 2018/06/12 | Accepted: 2018/06/12 | Published: 2018/06/12

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Volume 11, Issue 2 (Spring 2016) Back to browse issues page