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Investigating the Effect of Macroeconomic Variables on the Contagious Risk of Financial Distress of the Banking System (in Persian)

Author

Listed:
  • Barzeghar (Gholipour), Behrooz

    (Department of Financial Management, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.)

  • Falah Shams, Mirfeiz

    (Department of Financial Management, Faculty of Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran)

  • Khalili Araghi, Maryam

    (Department of Business Management, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.)

  • Nikomaram, Hashem

    (Department of Accounting, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.)

Abstract

The 2008 U.S.A. financial crisis, which subsequently spread around the world, showed that financial distress in the banking network could spread to the network of all financial institutions and the entire economy of a country. For this reason, the development of accurate measurements of the risk of transmission of financial distress by each bank in the banking network is very important in controlling the risk of financial intermediation in every country. However, an issue that has not received much attention in previous research is the impact of macroeconomic factors on the risk of spreading financial distress. This is important because governments can anticipate the possibility of an economic crisis by anticipating an increased risk of spreading financial helplessness and adopting monetary and fiscal policies to reduce such risk. The present study, in three stages, estimates the risk of financial distress using the KMV method, estimates the risk of transmission of financial distress using the VAR method, and models the effects of macroeconomic variables such as inflation, exchange rate, and GDP on the risk of contagion. Based on the results, it is clear that GDP has a statistically significant inverse relationship with the risk of transmission of financial distress, meaning that with increasing GDP, the risk of transmission of financial distress is expected to decrease. Also, the relationship between the exchange rate and the risk of transmission is direct and significant, and an increase in the exchange rate leads to an increase in the interdependence of financial institutions and, consequently, an increase in the risk of transmission of financial distress.

Suggested Citation

  • Barzeghar (Gholipour), Behrooz & Falah Shams, Mirfeiz & Khalili Araghi, Maryam & Nikomaram, Hashem, 2023. "Investigating the Effect of Macroeconomic Variables on the Contagious Risk of Financial Distress of the Banking System (in Persian)," The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی Ùˆ بودجه), Institute for Management and Planning studies, vol. 28(3), pages 105-132, December.
    • Handle: RePEc:auv:jipbud:v:28:y:2023:i:3:p:105-132
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    Keywords

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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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