The Impacts of Money and Capital Market Performances on Physical Capital Formation: The Case of Iran

Objective: Financial markets, including the capital market and the money market, generally have two important functions, the formation of physical capital and the provision of working capital in the economy. The purpose of this study is to identify and determine the impact of the main variables of money and capital markets on the formation of physical capital in Iran. Method: For this purpose, the method of self-regression patterns with distributive intervals (ARDL) and using monthly data during the period 1387.1 - 1399.3 after applying some restrictions has been used. Results: The findings of this study confirm the effect of capital market and money market performance variables on capital formation; In a way that in the capital market model, stock market value increases, mutual funds, bond issuance, gross domestic savings and inflation have had a positive effect on capital formation; Mutual funds have no significant effect on capital formation. Contrary to expectations, the inflation variable has had a positive effect on capital formation, the most important reason being the behavior of economic actors in terms of inflation expectations; Also in the money market model, increasing interest rates on bank deposits, loans to the private sector, gross domestic savings have had a positive effect on capital formation and changes in bank interest rates have a negative effect on capital formation. Conclusion: The results show that in general, both money and capital markets have played an effective role in the formation of physical capital, while the money market has a specific task of providing working capital; However, some major capital market variables have not been able to play a significant role in the formation of physical capital due to infrastructure problems