Examination of Oil Price Fluctuations Effects on Macroeconomy and Banking System in Iran as an Oil-Exporting Country with Vector Autoregressive Markov Switching Models

Larijani, Reihaneh; Sadeghi, Seyed Kamal; Karimi Takanlu, Zahra; Ranjpur, Reza

doi:10.30473/egdr.2023.66116.6631

Authors

¹ Ph.D. Candidate ,Faculty of Economics and Management, Tabriz University.

² Proffosor of Economics, Faculty of Economics and Management, Tabriz University.

³ Associate Professor, Faculty of Economics and Management, Tabriz University.

https://doi.org/10.30473/egdr.2023.66116.6631

Abstract

This study has been used to investigate the effect of oil price fluctuations on the banking system and how it is related to the macroeconomics, using the quality of bank fragility introduced by Kibritçioglu (2003) and the selection auto regression method with the Markov switching model.
Since fluctuating and unstable economic conditions have an impact on economic conditions and the banking system to detect the effect of oil prices, using the variables of fragility index and oil price, currency growth rate and GDP growth rate, the vector auto regression model with Markov switching (MSH(3)-VAR(1)) and seasonal data from 2004 to 2019 have been evaluated.
The results show that the oil price shock in the stable regime causes a smaller change in the value of the fragility index compared to the other two regimes, and with the increase in GDP, it improves the economic conditions and the banking system. On the other hand, in the regime with moderate risk, the oil price fluctuation causes an increase in bank fragility, but due to the effect of the oil price shock on the increase in GDP and the decrease in the exchange rate, it has the ability to become a stable regime. While the occurrence of oil price shock in a high-risk regime causes economic conditions to worsen and its reciprocal effect on the banking system.

Keywords

Main Subjects

OPEC

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Examination of Oil Price Fluctuations Effects on Macroeconomy and Banking System in Iran as an Oil-Exporting Country with Vector Autoregressive Markov Switching Models

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Volume 14, Issue 53January 2024Pages 52-31

Volume 14, Issue 53
January 2024
Pages 52-31