Payame Noor University Economic Growth and Development Research 2228-5954 13 49 2023 02 20 Banking Network Efficiency in the Path of Economic Growth with Emphasis on Business Cycles, Exchange Rate Fluctuations and Stocks (Markov Switching Model) Banking Network Efficiency in the Path of Economic Growth with Emphasis on Business Cycles, Exchange Rate Fluctuations and Stocks (Markov Switching Model) 90 75 8394 10.30473/egdr.2022.62279.6419 FA Neda Asadollahzadeh Jafari PhD Student, Department of Economics, Faculty of Law and Economics, Khomeini Shahr Branch, Islamic Azad University, Isfahan, Iran Bahar Hafezi Assistant Professor, Department of Economics, Faculty of Law and Economics, Khomeini Shahr Branch, Islamic Azad University, Isfahan, Iran Sayedmohsen Khalifehsoltani Assistant Professor, Department of Economics, Faculty of Law and Economics, Khomeini Shahr Branch, Islamic Azad University, Isfahan, Iran Journal Article 2021 12 27 Most of businesses financing in the country done by the banking network and banking network play a very important role in achieving macroeconomic goals. Accordingly, in the present study, the effect of fluctuations of asset markets (exchange rate, oil price and stock market index) on financial instability index over a period of 2009-2018 monthly is investigated by using the Markov Switching model. The wavelet transform model is used to extract exchange rate fluctuations, oil prices and stock market index. The results show that the effect of exchange rate fluctuations in different regimes and different time periods is different, so that in the short run the exchange rate fluctuations in the high regime of the financial instability index have a different effect than the other periods. Oil price fluctuations have a positive and significant effect in the medium- and long-term periods and in all regimes, and this effect will be stronger in the long run. Also, fluctuations in the stock market have a negative and significant effect only in the short run and under conditions of low regime of financial instability index. These results show that fluctuations have different effects with respect to time period as well as level of financial instability. Therefore, the management of foreign exchange rate and stock markets should take into the account of financial instability level and the timeframe for fluctuations. Most of businesses financing in the country done by the banking network and banking network play a very important role in achieving macroeconomic goals. Accordingly, in the present study, the effect of fluctuations of asset markets (exchange rate, oil price and stock market index) on financial instability index over a period of 2009-2018 monthly is investigated by using the Markov Switching model. The wavelet transform model is used to extract exchange rate fluctuations, oil prices and stock market index. The results show that the effect of exchange rate fluctuations in different regimes and different time periods is different, so that in the short run the exchange rate fluctuations in the high regime of the financial instability index have a different effect than the other periods. Oil price fluctuations have a positive and significant effect in the medium- and long-term periods and in all regimes, and this effect will be stronger in the long run. Also, fluctuations in the stock market have a negative and significant effect only in the short run and under conditions of low regime of financial instability index. These results show that fluctuations have different effects with respect to time period as well as level of financial instability. Therefore, the management of foreign exchange rate and stock markets should take into the account of financial instability level and the timeframe for fluctuations. https://egdr.journals.pnu.ac.ir/article_8394_f78edd0987aab2fac2cf92adfe5be6c8.pdf