Government Debt to Commercial Banks and Inflation Volatility in Iran

Document Type : Original Article

Author

Department of Economic, Arak University

Abstract

In recent years, Iran has experienced a significant increase in government debt to commercial banks. Therefore, it is crucial to understand the impact of increase in the government's debts to Commercial banks on the macroeconomic environment. Therefore, the main purpose of this article is to find an answer to the question of what is the relationship between the government's debt to commercial banks and inflation volatility in Iran's economy. For this purpose, we used seasonal data of inflation, government debt to banks, GDP gap, money, exchange rate and import from the period of 1989-2022, and the data were extracted from the data bank of the Central Bank of Iran. Inflation volatilities were calculated by employing the Time-Varying Parameter Stochastic Volatility in Mean (TVP-SVM), and the coefficients were estimated using the autoregressive with distributed lags (ARDL) model. The findings derived from calculating the volatility of inflation show that the model with time-varying coefficients offers a suitable explanation for estimating inflation volatilities in the Iran economy. The results show that there is a significant direct relationship between the change in government debt to commercial banks and inflation volatilities, both in the short and long run. Also, the changes in the GDP gap, exchange rate and the money exhibit a direct and significant relationship with inflation volatilities, however, the money coefficient is not statistically significant in the long run. In addition, importing decreases inflation volatilities in the short run, but it has no significant relationship with inflation volatilities in the long run. Based on the results, it is proposed to impose limiting laws on the government’s debt and the debt of state-owned companies to commercial banks, particularly focusing on short-term debt within the current account framework.

Keywords

Main Subjects

References

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Public Sector Economics Studies
Volume 3, Issue 2
July 2024
Pages 189-216

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History

  • Receive Date: 18 January 2024
  • Revise Date: 23 April 2024
  • Accept Date: 23 April 2024

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