Monetary and Banking Research Institution
Date:8/21/2018 2:45:29 PM   |   Code : 293827
A policy paper on “Cross Effect between Fiscal Sustainability and Financial Stability in Iran” has been published by the Monetary and Banking Research Institute (MBRI).
A policy paper on “Cross Effect between Fiscal Sustainability and Financial Stability in Iran” has been published by the Monetary and Banking Research Institute (MBRI).
 
 

Iranian government has experienced fiscal unsustainability without oil revenues. They were sustainable with use oil revenues only in 1997, 2000 and 2001-2002. Fiscal sustainability influences financial stability and vice versa at first and second lag in Iran. Results also indicate that the Iranian economy faced financial instability in 56 percent periods from 1991 to 2017.

According to the Public Relations department of the Monetary and Banking Research Institute (MBRI), Zhale Zarei inscribed in the abstract of the policy paper that Iranian economy faced financial instability in 56 percent periods from 1991 to 2017 and the Iranian government has experienced fiscal unsustainability without oil revenues and was sustainable with use oil revenues only in 1997, 2000 and 2001-2002.

In addition, there is a two-way interaction between the financial sector and sovereign sector in Iran since the instability of one kind causes another one. Also, fiscal condition index is the leading indicator to financial instability indicator.

A framework is presented for assessing the fiscal condition index and a concept is developed to assess fiscal condition of governments in line with implementing into the Iranian government as the oil export country.

Current debt crisis has cast a spotlight on the negative manifestations of the two-way interaction between the financial sector and sovereign sector in the wider world.

Risks are spreading from the financial sector to the sovereign sector through two main channels: (i) the provision of government support to the financial sector (direct capital increases, government guarantees, etc.), which is increasing sovereign debt, and (ii) financial sector deleveraging, which, by amplifying the contraction in overall economic activity, is leading to falling budget revenues and rising budget expenditures.

On the other hand, the main channels through which the growth in fiscal unsustainability is spreading to the financial sector are (i) change in the level of risk in other assets denominated in the same currency as sovereign exposures, and (ii) government bond revaluation losses.

The primary deficit gap analysis is used to analyze trends and tendencies, as well as to indicate periods of fiscal unsustainability Iran in period from 1991 to 2017.

Granger causality test has been used on a fiscal sustainability indicator and financial stability indicators to evaluate the direction of causality between these indicators.

Fiscal sustainability influences financial stability and vice versa at first and second lag in Iran. Assessing the cross effect between fiscal condition index and financial instability indicator demonstrate that fiscal condition index is the leading indicator to financial instability indicator.  

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