Measuring Credit Gap in Iran: Semi-Structural Approach

Document Type : Research Paper

Authors

Department of Economic, Faculty of Economic, University of Tehran, Tehran, Iran

Abstract

In response to the criticisms of purely statistical methods, based on the semi-structural approach, the credit gap in Iran's economy was calculated from 1994 to 2019. For this purpose, the credit trend was specified based on a generational overlap model as a function of potential output, natural interest rate, institutional quality, and the ratio of the young population. Then, the trend and the credit gap were estimated as a state-space system. The results show a significant positive credit gap between 2013 to 2017 and 2014 to 2017. The origin of excessive credit growth in these two periods is different from each other. Also, the impact of structural variables changes on creating the credit gap in different periods was calculated. In addition, the study of financial crises in Iran reveals that this credit gap has good power in predicting crises.
JEL Classification: G21, E58, C32

Keywords

Main Subjects

References

Abbasnejad, H. & Kavand, H. (2007). Calculation a productivity criterion in Iran by Kalman Filter approach. Iran Economic Researches.9(31).31-55. (In Persian).
Afzali, A., Taiebnia, A., & Mehrara, M. (2022). Measuring Basel Credit Gap in Iran : Assessing Implications in Banking Supervision and Crises Prediction. Iranian Journal of Economic Studies. 10(1), 173–191.
Baba, C., Erba, S. D., Detragiache, E., & Harrison, O. (2020). How Should Credit Gaps Be Measured ? — An Application to European Countries. IMF Working Paper.
Basel Committee on Banking Supervision. (2010). Guidance for national authorities operating the countercyclical capital buffer. In Report (Issue December). http://www.bis.org/publ/bcbs187.htm
BIOLAN, B. C. (2018). a Comparison Between Detrending Methods: Hodrick-Prescott, Baxter-King, Christianofitzgerald Filters. a Short Survey. Review of the Air Force Academy, 16(2), 89–94.
Blagrave, P., Garcia-Saltos, R., Laxton, D., & Zhang, F. (2015). A Simple Multivariate Filter for Estimating Potential Output. IMF Working Papers, 15(79), 1-20.
Borio, C., & Drehmann, M. (2009). Assessing the risk of banking crises – revisited. BIS Quarterly Review, March, 29–46. http://www.bis.org/publ/qtrpdf/r_qt0903e.pdf
Borio, C., & Lowe, P. (2002). Assessing the risk of banking crises. BIS Quartlerly Review, December, 43–54. https://doi.org/10.1111/j.1523-1747.2005.0A153.x
Detken, C., Weeken, O., Alessi, L., Bonfim, D., Boucinha, M. M., Castro, C., Frontczak, S., Giordana, G., Giese, J., Jahn, N., Kakes, J., Klaus, B., Lang, J. H., Puzanova, N., & Welz, P. (2014). Operationalising the Countercyclical Capital Buffer: Indicator Selection, Threshold Identification and Calibration Options. Ssrn, 5.
Drehmann, M., Borio, C., Gambacorta, L., Jim\’{e}nez, G., & Trucharte, C. (2010). Countercyclical Capital Buffers: Exploring Options, Bank for International Settlements, Working Paper No. 317. Available at: www.bis.org.
Drehmann, M., & Yetman, J. (2018). Why you should use the Hodrick-Prescott filter - at least to generate credit gaps. BIS Working Paper Series, 744. www.bis.org
Drehmann, M., & Yetman, J. (2017). Financial Stability Review. Intellectual Property, 110(February), 1–190. http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/finantsvahendus/_2004_1/fsy_504.pdf
Eggertsson, G. B., Mehrotra, N. R., & Robbins, J. A. (2019). A model of secular stagnation: Theory and quantitative evaluation. American Economic Journal: Macroeconomics, 11(1), 1–48. https://doi.org/10.1257/mac.20170367
Elekdag, S., & Wu, Y. (2011). Rapid Credit Growth: Boon or Boom-Bust? In IMF Working Paper.
Galán, J. E., & Mencia, J. (2018). Empirical Assessment of Alternative Structural Methods for Identifying Cyclical Systemic Risk in Europe. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3226820
Hamilton, J. D. (2017). Nber Working Paper Series Why You Should Never Use the Hodrick-Prescott Filter. http://www.nber.org/papers/w23429
Holston, K., Laubach, T., & Williams, J. C. (2016). Measuring the Natural Rate of Interest: International Trends and Determinants Board of Governors of the Federal Reserve System Measuring the Natural Rate of Interest: International Trends and Determinants *. Federal Reserve Bank of San Francisco Working Paper Series, 11. http://www.frbsf.org/economic-research/publications/working-(2014).
Innes, A. M. (1914). The credit theory of money. Credit and State Theories of Money: The Contributions of A. Mitchell Innes, 31, 50–78. https://doi.org/10.4337/9781843769842.00008
Kaur, G. (2006). Munich Personal RePEc Archive Kalman Filter and its Economic Applications Kalman Filter and its Economic Applications. 22734.
Lang, J., & Welz, P. (2018). Semi-structural credit gap estimation. ECB Working Paper, 2194.
Laubach, T., & Williams, J. C. (2003). Measuring the natural rate of interest. Review of Economics and Statistics, 85(4), 1063–1070. https://doi.org/10.1162/003465303772815934
Levine, R. (2005). Chapter 12 Finance and Growth: Theory and Evidence. Handbook of Economic Growth, 1(SUPPL. PART A), 865–934. https://doi.org/10.1016/S1574-0684(05)01012-9
Reinhart, C., & Rogoff, K. (2009). International aspects of financial-market imperfections: The aftermath of financial crises. American Economic Review, 99(2), 466–472. https://doi.org/10.2139/ssrn.2882661
Ruiz, A. U. (2015). Understanding the dichotomy of financial development : credit deepening versus credit excess. Bbva, 15/01(January), 1–43.
Schularick, M., & Taylor, A. M. (2012). Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008. American Economic Review, 102(2), 1029–1061. https://doi.org/10.1257/aer.102.2.1029
Terrones, M., & Mendoza, E. (2004). Are credit booms in emerging markets a concern. World Economic Outlook, 147, 166.
Werner, R. (2011). Economics as if banks mattered: A contribution based on the inductive methodology. Manchester School, 79(SUPPL.2), 25–35. https://doi.org/10.1111/j.1467-9957.2011.02265_5.x
Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 58, Issue 4 - Serial Number 145
December 2023
Pages 543-564

Files

History

  • Receive Date: 25 February 2023
  • Revise Date: 20 October 2023
  • Accept Date: 16 January 2024

Share

How to cite

Statistics