Samira Noori; Sohrab Delangizan; Kiomars Sohaili
Abstract
INTRODUCTION
Today, new financial technologies (fin techs) have caused extensive changes in the banking industry. In recent years, new financial technologies have become the most popular term in the word of economic markets Investors in these emerging markets are looking ...
Read More
INTRODUCTION
Today, new financial technologies (fin techs) have caused extensive changes in the banking industry. In recent years, new financial technologies have become the most popular term in the word of economic markets Investors in these emerging markets are looking to innovate to improve their position. Fintech includes both digital innovations and technology-based business model innovations in the financial sector. Such innovations can disrupt existing industry structures. Fintech development has increased the competitiveness of commercial banks, as digital technologies play an important role in improving the efficiency of services provided by banks. and other financial institutions have played to small companies and private companies. Others believe that the most important question is when these innovations in fintech will affect the implementation and formulation of macroeconomic policies. Therefore, the new financial technology and its effect on the monetary field, its concepts and its nature need to be investigated and explained. In this research, the role of modern financial technology on Monetary Base Usages in Iran will be examined, and in this regard, in order to check the validity of the research hypotheses, the econometric models will be used the data during the period of 2013-2019. This model is estimated by ARDL and OLS approach.
2- THEORETICAL FRAMEWORK
Electronic money can be replaced central bank money by in terms of its features. The replacement of central bank money will affect it the most due to the relatively larger volume of banknotes and coins in the definition of M1 money. The narrow definition of M1 money includes notes and cash in the hands of the people (C) plus demand deposits (D). Bank cards can increase the volume of money by increasing liquidity and monetary base. According to the theories of monetarists, the increase in money in turn causes an increase in inflation, because with an independent increase in the amount of money, the amount of money paid and the amount of money demanded collides, and as a result, it faces a surplus of money, which causes it to increase. Lack of sufficient supply of goods causes prices to rise.
3- METHODOLOGY
The patterns examined in this research are as follows The model introduced to evaluate the estimation of modern financial technology on the speed of in come velocity:
LVt=α0+α1LVt-1+α2LFINTECHt+α3LCUt+α4LM1t+Ut (1)
The model introduced to check the estimation of the new financial
technology on the money multiplier:
Lmt=α0+α1TRENDt+Ut (2)
The introduced model for evaluation of the estimation of new financial technology on money supply:
LM1t=α0+α1LM1t-1+α2LFINTECHt+α3Lmt+α4LCUt+α5LRGDPt+Ut (3)
And at the end, the model introduced to investigate the role of modern financial technology on monetary base usages:
LMBt=α0+α1LMBt-1+α2LFINTECHt+α3Lmt+α4LRGDPt+α5LRRt+Ut (4)
4- RESULTS & DISCUSSION
The results of the models show that modern financial technology (the sum of mobile and internet transactions) has a positive and significant effect on the money multiplier in Iran, because in the era of modern financial technology, the monetary money multiplier trend has been upward. In examination of the velocity of money, the results show that modern financial technology and money supply have a positive and significant effect on the velocity of money in Iran. but the volume of banknotes and coins in the hands of the people has a negative and significant effect on the velocity of money in Iran, because the increase in the volume of banknotes and cash in people's hands increases the ratio of banknotes and cash to deposits, which in itself leads to a decrease in the velocity of money. In examining the money supply pattern, the results showed that the new financial technology, money multiplier, real gross product and the number of banknotes and coins in the hands of the people have a positive and significant effect on the money supply in Iran. In examining the model of monetary base usages, the results indicated that modern financial technology, monetary multiplier and real gross output have a negative and significant effect on monetary base usages in Iran, but the volume of legal reserves with the central bank has a positive and significant effect on monetary base usages.
5- CONCLUSIONS & SUGGESTIONS
The results show that the emergence of new financial technologies increases income velocity, money multiplier and supply of money and on the other hand leads to a decrease monetary base usage. The expansion of modern financial technologies is necessary due to the reduction of transaction costs, the increase in the speed of transactions, the facilitation of the implementation of banking services and the increase of competition between knowledge-based companies, and the basis for its expansion must be provided.
sohrab delangizan; younes goli
Abstract
1-Introduction
One of the main goals of all countries is economic growth. This purpose can be accessible through having strong financial sector that provides finance for real sector. One of the main problems of the Iranian economy is the high share of the banking sector in financing economic activities. ...
Read More
1-Introduction
One of the main goals of all countries is economic growth. This purpose can be accessible through having strong financial sector that provides finance for real sector. One of the main problems of the Iranian economy is the high share of the banking sector in financing economic activities. According to the evidence of statistical center of Iran, the share of the banking sector to finance economic activities is over 90 percent. Therefore, considering the importance of banking sector in economy, studying bank performance is very important. One of the criteria for banking performance is cost efficiency. Higher cost efficiency leads to an increase in the flexibility of banking sector to negative shocks. In the last year, the number of banks in Iran has increased; therefore, competition between banks will increase to gain higher share of the market. The banks' reactions to the increase competition cause changes in the financial structure of banks. This study tries to investigate if competition can have any effect on cost efficiency.
2- Theoretical Framework
Theoretical literature on the relationship between competition and bank efficiency can be explained as follows. The Quiet Life Hypothesis (QLH) was first suggested by Hicks (1935). Based on QLH, market power allows firms to enjoy a quiet life, but such a life reduces firm managers’ effort to maximize their firm efficiency. In other words, managers can exercise market power of banks to gain supernormal profit without making efforts to work or control costs toward increasing bank efficiency. Thus, increased monopoly power results in a decrease in efficiency whereas competition fosters bank efficiency.
Demsetz (1973) in his Efficient-Structure Hypothesis (ESH) suggests that an efficient firm can lower costs of production and thus gain both higher profits and larger market shares. Thus, as the market becomes more concentrated and banks can exploit greater market power, they face less competition. As a result, the ESH posits a positive causality running from efficiency to market power.
The Information Generation Hypothesis (IGH) theorizes a negative relationship between competition and efficiency. IGH is based on the view that banks are special intermediaries because they have access to borrowers’ information to collect and analyze internal/personal information. Thus, they are able to reduce their adverse borrower selection to a minimum level due to the ability to generate superior information compared to their peers (Koetter, Kolari & Spierdijk, 2008). To summarize, competition among banks leads to a decline in their information-gathering capacities, and eventually results in a higher probability of adverse borrower selection and thus higher bank inefficiency.
6- Methodology
In this study, parametric Stochastic Frontier Approach (SFA) is used to measure the cost efficiency of 18 Iranian commercial banks. The SFA is a stochastic method because it allows banks to be distant both from the frontier and randomness. It differs from Data Envelopment Analysis (DEA) which supposes that to be far from the frontier is entirely due to inefficiency. We then use these measures to examine whether bank competition enhances or impedes bank cost efficiency by employing generalized method of moment approach.
7- Results and Discussion
The results of cost inefficiency show that, the entire mean cost inefficiency of 18 Iranian commercial banks is 0.146 in 2006 and increases over the sample period to 0.265 in 2014. The cost inefficiency of Melli banks is the highest while that of Sina bank is the lowest. Cost inefficiency of privately-owned banks are relatively higher than stat-owned banks. The results of Granger-Causality indicated that there is bidirectional causality between competition and cost efficiency. Also, the results of GMM estimation show that higher inflation, low growth rate and higher competition have positive effect on cost inefficiency. Therefore, information generation hypothesis in Iran banking industry is verified because increasing competition leads to a decline in their information-gathering capacities, and eventually results in a higher probability of adverse borrower selection and thus higher bank inefficiency. These effects have been proved for loan and deposit market.
The results of factors affecting competition indicated that increasing inflation, growth rate, size of the banks and cost inefficiency have positive effect on competition. Therefore, the efficient-structure hypothesis can be confirmed, and higher cost inefficiency leads to increasing in competition.
8- Conclusions and Suggestions
One of main goals of this study is to find out the relationship between competition and cost inefficiency in banking industry over 2006-2014. The results of study show that macro-level variable is the most important in determining cost inefficiency. Therefore, creating economic stability and increasing economic growth can lead to an increase in cost efficiency. Moreover, the Central Bank’s supervision should increase over commercial banks and controlling entry of new banks for increasing the quality of banking system and increasing the quality of borrowers by strong screening process.
9- Key Words: Cost efficiency, Banking industry, Translog cost function, Competition, Boon index.
JEL Classification: E47, E58, D61.
References (in Farsi)
Issa Zadeh, S., & Shaeri, Z. (2012). [The effect of macroeconomic stability on the efficiency of the banking system (Case study of the Middle East and North Africa)]. Monetary, Financial Economics, 3(19), 53-86. (in Persian)
Kodadkashi, F., & Hajian, M. (2013). [Evaluating cost-efficiency of Iran's banking industry: 2001-2007]. The Journal of Planning and Budgeting, 18(1), 3-24. (in Persian)
Najarzadeh, R., Ezati, M., & Mirnejad, H. (2012). [A study of the competitiveness of the Iran’s banking system using Panzar-Rosse model]. Iranian Journal of Economic Research, 17(51), 157-179. (in Persian)
Sohrab Delangizan; Kiomars Sohaili; Minoo Mohammadi Tirandazeh
Abstract
Abstract:
Introduction
Over the past years, Iranian foreign exchange system encountered with many changes. This matter has increased the possibility of deviation of the real exchange rate from its equilibrium path. So, realizing the long run equilibrium path deviations and their impact on macroeconomic ...
Read More
Abstract:
Introduction
Over the past years, Iranian foreign exchange system encountered with many changes. This matter has increased the possibility of deviation of the real exchange rate from its equilibrium path. So, realizing the long run equilibrium path deviations and their impact on macroeconomic variables can provide economic policymakers with suitable solutions. In specialists discussions, the correct exchange rate that meets the needs of all sectors of economy, from producers to the consumers in the best conditions, is among the most important and challenging issues.
Theoretical frame work
According to the extent of government and central bank intervention there are several exchange rate systems are: 1) fixed exchange rate regime, 2) managed floating exchange rate regime and 3) floating exchange regime. According to Nurks, deviation of exchange rate from long-term equilibrium path leads to internal and external balance simultaneously. The Real exchange rate balance can be determined with respect to three perspectives: Purchasing Power Parity method, The Elasticities Approach, and General-Functional Balance method. The nominal exchange rate can be determined according to: 1) PPP model, 2) Fundamental Equilibrium Exchange rate model, 3) Behavioral Equilibrium Exchange rate model, 4) Permanent Equilibrium Exchange rate model, 5) Natural Rate of Exchange .(Siregar& Rahan,2006)
Methodology
This Study attempts to estimate the deviation of nominal exchange rate of Iranian Rial against U.S. dollar from its long-run equilibrium level, using the model of Coudert and Couharde (2007), based on FEER, applying the method of Johansson cointegration (1999).
Results & Discussion
None of the variables is stationary in level (TRGOVER/GDP), CPIIRWHOLS, and CPIIR . We apply the Johansen- Juselius test (1999), for testing the existence of cointegration relationship between time series. Vector Error Correction Model (VECM) related to this model is as follow:
〖∆Y〗_t=β_1 〖∆Y〗_(t-1)+β_2 〖∆Y〗_(t-2)+⋯+β_(ρ-1) 〖∆Y〗_(t-ρ-1)+∏▒Y_(t-ρ) +φD_t+Uu_t
After estimation of import and export function and the their effect on exchange rates deviation, the deviations in official exchange rate according to trade balance in public and private sectors is:
me (=[(tb) ̌-tbgovertarget-tbprovtarget])/(φ+(a/0.698273))
a=φ〖*τ〗_g+ϑ*ε*τ_ρ-ϑ*έ-ϑ
Conclusion & Suggestion
The result shows that the official exchange rate of the Rial against U.S. dollar has been over-valued by about 64.75 percent. Therefore the Iranian rial should be allowed to depreciate by this amount in order to achieve the internal and external equilibrum. The important point that must be considered by policymakers is that iranan country is the importer of many raw and intermediary goods, and with increasing exchange rate, the costs of production of final goods will increase. Therefore this condition leads to inflation, so that by increasing exchange rate, competition capacity of final producs in Iran decreases in comparing with the production of the same goods in other countries.A recommendation for solving this problem is that for importing raw and intermediary goods, subsides should be paid to the producers, so that the competition capacity of domestic producers increase against foreign producers.
Keywords: Exchange Rate Deviation, the Fundamental Equilibrium Exchange Rate, Internal Balance, External Balance, Trade Balance.
JEL: F32, F31
