Journal of Money and Economy

In this paper we construct a modeling for detection of banks which are experiencing serious problems. Sample and variable set of the study contains 30 banks of Iran during 2006-2014 and their financial ratios. Well known multivariate statistical technique (principal component analysis) was used to explore the basic financial characteristics of the banks, and discriminant Logit and Probit models were estimated based on these characteristics. Results suggest that the model can be used as an analytical decision support tool in both on-site and off-site bank monitoring system to detect the banks which are experiencing serious problems. JEL Classifications: C49, G21, G33

To prevent further increases in energy consumption, the government of Iran commenced energy subsidy reform in 2010. This paper investigates the fuel conservation effects of the reform in Iran using a homothetic translog cost function that provides estimates of the own- and cross-price elasticities of fuel demands. The percentage reduction in fuel demands is estimated using the likely effect of the reform on fuel prices. The results reveal that the reform may not be as successful as assumed. Under optimistic assumptions, the reform may reduce energy consumption marginally, and under pessimistic assumptions, it may increase energy consumption because of inelastic fuel demands and substantial substitution between fuels. JEL Classifications: C32, Q38, Q43

The purpose of this study is to investigate the impact of exchange rate misalignment on inflation persistence. For this purpose, Vector Auto Regression method and Markov Switching model is used for quarterly data during 1989:4 -2014:3. The results show that, the impact of liquidity growth and exchange rate misalignment on inflation persistence is positive. On the other hand, GDP growth has a negative effect on inflation persistence. By Markov Switching model the nonlinear relationship between variables was investigated; based on Markov Switching model, quarterly inflationary environment (inflation regime) were extracted for economy of Iran, and the results show three different regimes for quarterly inflation. Markov model findings are consistent with VAR model findings. Results also show that, the impact of exchange rate misalignment on stable inflation regime is positive and the impact of exchange rate misalignment on unstable inflation regime is negative. JEL Classifications: F31, E3, D31, C22, H5

The purpose of this paper is to investigate the relationship between the inflation and inflation uncertainty in Iran. Using mixed models of self-exciting threshold autoregressive (SETAR) and generalized autoregressive conditional heteroskedasticity (GARCH), the inflation behaviors are examined for the period 1990M05-2013M10. This approach allows testing the hypotheses of Friedman-Ball, Pourgerami-Maskus, Cukierman-Meltzer, and Holland during different inflationary regimes. The results indicate that an increase in Iran’s inflation leads to higher inflation uncertainty, as predicted by Friedman-Ball Hypothesis, while the other three hypotheses are not confirmed. Positive unidirectional causality from inflation to uncertainty seems to be significant only in periods of relatively higher inflation, but not in periods of low inflation. The finding is important because it confirms the existence of regime-dependent effect of inflation on public’s expectations about future inflation; that, in trend, it reduces economic activity and misallocates resources. This is a new insight about asymmetric behaviour of inflation in Iran that has noteworthy implications for policy-makers, especially for price stabilizing and inflation targeting. JEL Classifications: C22, E31.

The banks’ response to their changes in leverage ratios is examined and evaluated in this paper. This reaction can be interpreted as if the coefficient of total debts to equity (lev1) and total assets to equity (lev2) are positive as anticipated in the banking network of Iran. The paper uses data from 31 Iranian banks’ annual databases during the course of 2006-13 in order to estimate an empirical panel data model of banks’ balance sheet adjustment. We identify the leverage ratio degree to show that both equity and liabilities tend to adjust to move leverage positively without considering the state of the Iranian economy. On the other hand, the index of leverage coefficient conditioned by the state of the economy is negative which replicates that banks tend to experience a negative impact of leverage on the return to equity as a result of cost push due to higher ratio of assets to equity in the bust and inappropriate return on investment. Furthermore, the non-performing loans ratio coefficient is negative and significant which proves that one percent increase in the nonperforming loans has led to a less than one percent decrease in the return on equity ratio as expected, but the total loans to total deposits ratio depicts a negative-significant coefficient which denotes the higher non-performing loans have caused that loans ratio increase will not necessarily give rise to higher returns for the banks. Besides, the leverage ratio (lev2) is positive as expected and banks gain higher returns through higher leverage. However, the leverage measure’s coefficient conditioned by the state of the economy (dummy) is negatively significant owing to cost push from lower return on investment and higher ratio of assets to equity in the bust. JEL Classifications: C23, E32, E44, E51, G21, M20

This paper focuses on developing models to study influential factors on the inflation rate for a panel of available countries in the World Bank data base during 2008-2012 . For this purpose , Random effect log-linear and Ordinal logistic models are used for the analysis of continuous and categorical inflation rate variables . As the original inflation rate response to variables shows an apparent right skewness , the log transformation in the linear mixed effect model seems necessery . In the ordinal logistic mixed effect model , as a new approach , the inflation rate variable is categorized based on two threshols to increase model predictibality and precision . These two models consider the potential serial correlation between annual infltion rates and categories through introducing some latent random effect parameters . The results of both models show that money growth , GDP , oil price and income levels of the available countries are significant predictors with increasing effect on the next year inflation rate category . Using the categorical inflation response variable yields some superior results where government expenditure , exchange rate and capital formation are also detected as significant determinants of ordinal inflation variable . Also , the random effect variance is highly significant in both models which shows the necessery need for consideration of the potential association of inflation variables across time . JEL Classifications: E17, E27, E31, E37, E47