Iranian Journal of Trade Studies

Iranian Journal of Trade Studies

The Great Banking Transformation and the Financial Big Push: The Central Bank’s Role in Economic Stabilization Up to 1410 - A Study Using Panel VAR and Control Theory

Document Type : Research Paper

Authors
MARYAM SADEGHI 1
Parvaneh kamali dehkordi 2
Parisa Yaghoubi Manzari 3
Soodabeh Jamalof 4
1 Ministry of Economic Affairs and Finance (Center for Public Debt Management and Government Financial Relations)
2 Associate Professor of Economics, Payam Noor University, Tehran, Iran, (Corresponding Author)
3 Assistant Professor, Institute For Trade Studies and Research
4 Faculty of Damavand Azad University
10.22034/ijts.2025.2036270.4025
Abstract
In this paper we are pursuing the causes of galloping inflation and economic depreciation which afflicted Iran’s economy during the past 10 years. At the moment Iran economy is experiencing a big inflation and stagnant economy which is enduring about 12 years. This inflation and economic decline have had a profoundly negative impact on the financial and banking systems, raising the alarming risk of a banking and economic crisis. While this crisis is challenging to address, there is still time to take corrective measures. In this study, we examine the underlying causes of this phenomenon and propose potential solutions to the problem. Using Panel VAR models, we estimate the relationships between key variables and apply a control model to analyze the situation further. We have some interesting results. Under the scenario where the central bank raises the interest rate by 2 percentage points up to the year 1410, we observe a sharp decline in the high volume of money demand, accompanied by a reduction in inflation. The investment and capital stock in the industrial sector, which had been declining up to the year 1400, are projected to reverse their trends. Notably, the investment index and the Tehran Stock Exchange index are expected to grow by at least ten percent annually. Finally, we provide an analysis of the policy implications.
 
 
Keywords
Vart Panel / Optimal Control / Role of Banks / Economic Stabilization

Subjects

 
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  • Receive Date 22 July 2024
  • Revise Date 24 December 2024
  • Accept Date 25 January 2025