The effect of financial stability and fluctuations in the value of the national currency on the efficiency of Islamic banking, under the switching regime change model

Subject Areas : Financial Knowledge of Securities Analysis

hadi radfar ¹ (PhD student of Islamic Economics, South Tehran Branch, Islamic Azad University, Tehran, Iran)
Mohammad Khazri ² (Department of Economics, South Tehran Branch, Islamic Azad University, Tehran, Iran (corresponding author))
fatemeh zandi ³ (Department of Economics, South Tehran Branch, Islamic Azad University, Tehran, Iran)
bijan safavi ⁴ (Department of Economics, South Tehran Branch, Islamic Azad University, Tehran, Iran)

Received: 2023-03-20 Accepted : 2023-05-07 Published : 2023-07-23

Keywords: financial stability, value of national currency, efficiency of Islamic banking, Markov switching regime change,

Abstract :

In this study, we seek to investigate the effect of financial stability and fluctuations in the value of the national currency on the efficiency of Islamic banking in recession and boom regimes. For this purpose, the effect of study variables during the period of 1373 to 1400 is investigated by using the rotation model and Markov switching regime change. The estimation results of the model show that the coefficient of financial development is positive in the prosperity regime. The coefficients of the variables of weakening the value of the national currency in both recession and boom regimes, liquidity and global financial and oil crises have also had a negative impact on the yield of bank contracts in the recession regime. The artificial pricing of the exchange rate in the years before the crisis and preventing its adjustment according to economic conditions is one of the main reasons for the recent fluctuations in the value of the national currency. Thus, as the growth of the exchange rate has increased, the policy makers have tried to control the growth of the exchange rate and prevent its increase by reacting more to it. Meanwhile, the reaction to exchange rate deviations has led to a further weakening of the value of the national currency. As the fluctuations in the value of the national currency increase, the amount of investment in the production sector has decreased and the production situation and the efficiency of the contracts have also worsened.

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