The Effect of Inflation on Financial Development Indicators in Iran (2000–2015)

Open access

Abstract

Inflation and financial development are among the factors that influence economic growth and the interaction between them is a major issue in developing countries. The aim of this paper is to investigate the effect of inflation on financial development indicators in Iran using seasonal data over 2000-2015. To achieve the research objectives, time series data were collected from World Bank and seasonal inflation rate, with 5 financial development indicators were used to measure the research variables. Then I applied Johansen Co-integration Test and Vector Error Correction Model to estimate the proposed model. The results show that inflation has a negatively significant effect on financial depth and also positively significant effect on the ratio of total deposits in banking system to nominal GDP in Iran during the observation period. Also the existence of an equilibrium relationship between inflation and other 3 indicators of Iran`s financial development used in this study was rejected.

Abbey, E. (2012). Inflation and Financial Development: Evidence. American Journal of Economics and Business Administration, 4(4), 227.

Aboutorabi, M. A. (2012). The Effect of Inflation on Financial Development: The Case of Iran. Journal of Basic and Applied Scientific Research, 8, 8394-8400.

Al Nasser, O., and Garza, X. (2009). Do well-functioning financial systems affect the FDI flows to Latin America. International Research Journal of Finance and Economics, 29, 60-75.

Altig, D. (2003). What is the right inflation rate?. Economic Commentary. Federal Reserve Bank of Cleveland, September, 15.

Ang, J. B., and McKibbin, W. J. (2007). Financial liberalization, financial sector development and growth: evidence from Malaysia. Journal of development economics, 84(1), 215-233.

Bittencourt, M. (2011). Inflation and financial development: Evidence from Brazil. Economic Modelling, 28(1), 91-99.

Boyd, J. H., Levine, R., and Smith, B. D. (2001). The impact of inflation on financial sector performance. Journal of monetary Economics, 47(2), 221-248.

Choong, C. and Chan, S. (2011). Financial Development and Economic Growth, A Review. African Journal of Business Management, 5(6), 2017-2027.

Choi, S., Smith, B. D., and Boyd, J. (1996). Inflation, Financial Markets, and Capital Formation. Federal Reserve Bank of St., Louis Review, 78, 9-35.

Demetriades, P. O., and Hussein, K. A. (1996). Does financial development cause economic growth? Time-series evidence from 16 countries. Journal of development Economics, 51(2), 387-411.

Engle, R. and Granger, C. (1987). Co-integration and Error Correction: Representation, Estimation, and Testing. Econometrica, 55(2), 251-276.

English, W. B. (1999). Inflation and financial sector size. Journal of Monetary Economics, 44(3), 379-400.

Hami, M. (2014). Inflation and Openness: Empirical Evidences From Iran (1965-2010). Studies in Business and Economics, 9(2), 27-32.

Hanif, M.N., and Batool, I., (2006). Openness and Inflation: A Case Study of Pakistan. MPRA Paper, No 10214, 1-8.

Haslag, J. H., and Koo, J. (1999). Financial repression, financial development and economic growth (No. 9902). Federal Reserve Bank of Dallas.

Gonzalo, J. (1994). Five Alternative Methods of Estimating Long-Run Equilibrium Relationships. Journal of Econometrics, 60(1-2), 203-233.

Johansen, S. (1988). Statistical Analysis of Co-integration Vectors. Journal of Economic Dynamics and Control, 12(2-3), 231-254.

Khan, M. S., (2002). Inflation, Financial Deepening and Economic Growth. International Monetary Fund’s Paper prepared for the Banco de Mexico Conference on Macroeconomic Stability, Financial Markets and Economic Development, Mexico City.

Khan, M. S., Senhadji, A. S., and Smith, B. D. (2006). Inflation and financial depth. Macroeconomic Dynamics, 10(02), 165-182.

Kim, D., Lin, S., and Suen, Y. (2010). Dynamic Relationship Between Inflation And Financial Development. Macroeconomic Dynamics, 14(3), 343-364.

Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-726.

Levine, R., Loayza, N., and Beck, T. (2000). Financial intermediation and growth: Causality and causes. Journal of monetary Economics, 46(1), 31-77.

Moayedi, V., and Aminfard, M. (2012). Iran's post-war financial system. International Journal of Islamic and Middle Eastern Finance and Management, 5(3), 264-281.

Odhiambo, N. M. (2012). The Impact Of Inflation On Financial Sector Development: Experience From Zambia. Journal of Applied Business Research (JABR), 28(6), 1497-1508.

Ozturk, N., and Karagoz, K. (2012). Relationship Between Inflation and Financial Development: Evidence from Turkey. Journal of Alanya Faculty of Business/Alanya Isletme Fakültesi Dergisi, 4(2), 81-87.

Rousseau, P. L., and Yilmazkuday, H. (2009). Inflation, Financial Development, and Growth: A Trilateral Analysis. Economic Systems, 33(4), 310-324.

Salimifar, M., Mojtahedi, S., Hadad Moghaddam, M., and Zendehdel, S. H. (2012). The Impact of Inflation on Financial Sector Performance in Iran. Quarterly Journal of Applied Economics Studies in Iran, 1(2), 177-215. (In Persian)

Schwarz, G. (1978). Estimating the dimension of a model. Annals of Statistics, 6(2), 461-464.

Smith, B.D. (2003). Taking intermediation seriously. Journal of Money, Credit and banking, 35, 1319-1357.

Stock, J. and Watson, M. (1988). Variable Trends in Economic Time Series. Journal of Economic Perspectives, 2(3), 147-174.

Tobin, J. (1965). Money and economic growth. Econometrica: Journal of the Econometric Society, 33(4), 671-684.

Yahyazadehfar, M., Tehranchian, AM., and Hami, M. (2014). Social capital and financial development in Iran. Quarterly Journal of Economic Growth and Development Research, 4(16), 73-88. (In Persian)

Journal Information

Metrics

All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 115 115 5
PDF Downloads 122 122 21