Examining the Nonlinear Effects of Exchange Rate Volatility and Inflation on Non-Performing Loans of State-Owned Banks: A Markov Regime Switching Approach under Sanctioned and Non-Sanctioned Conditions
Ahmad Eini
1
(
Department of economics, Faculty of Management and economics , Islamic Azad University, Qazvin ,Iran
)
beitollah akbari moqadam
2
(
assistant professor
)
roozbeh balounejad nouri
3
(
Assistant Professor
)
Keywords: Exchange Rate, Inflation, Non-Performing Loans (NPLs), State-Owned Banks, Markov Regime Switching, Sanctions.,
Abstract :
This study aims to examine the nonlinear effects of exchange rate and inflation volatility on non-performing loans (NPLs) of state-owned banks in Iran using a Markov regime-switching approach under sanctions and non-sanctions conditions during the period from 2004 to 2018. The EGARCH model was employed to extract the volatility of the exchange rate and inflation. After confirming the stationarity of the variables and the existence of a nonlinear relationship, the Markov switching model was applied to analyze the data. The findings indicated that exchange rate volatility significantly increases non-performing loans under sanctions, while this effect is less pronounced and insignificant during non-sanction periods. Moreover, inflation volatility significantly increases non-performing loans under sanctions, whereas this effect is not significant under non-sanctions conditions. The results of the regime analysis revealed a high probability of remaining in a non-sanctions regime, but under sanctions conditions, despite relative stability, there is a possibility of returning to a normal state.
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