The Effect of the Economic Uncertainty Index on the Stability of the Health of the Financial System

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Hasani Davood; Fallah Shams Layalestani Mir Feiz; ZOMORODIAN GHOLAMREZA

Title

The Effect of the Economic Uncertainty Index on the Stability of the Health of the Financial System

Author(s)

Hasani Davood | Fallah Shams Layalestani Mir Feiz | ZOMORODIAN GHOLAMREZA | Issue Writer Certificate

Keywords

Economic Uncertainty

Political Uncertainty

Health

Financial System Health

Abstract

Background & Aims Uncertainty is a state in which the knowledge of a person or persons is limited and full knowledge of the state or result that has been achieved or is not possible. Macroeconomic uncertainties create an uncertain environment for investors and make it impossible for investors to make decisions about future investments more efficiently and with more confidence, and they may suffer huge losses. Among the major indicators of Economic Uncertainty, we can mention inflation uncertainty, oil price uncertainty, exchange rate uncertainty, and gold price uncertainty. Uncertainty has attracted an important part of modern research in economics and has been proven to be an important factor for any economy. Uncertainty is a situation in which the possible events that will happen in the future are not clear and known. If they are known, the probability of their occurrence or the probability distribution function is unclear. In such a situation, making decisions about the future becomes complicated, and it is said that an "uncertain atmosphere" has dominated the decisions. One of the most important signs of uncertainty in an economic system is high and severe fluctuations in economic variables. In developing countries, including Iran, one of the reasons why the private sector is less willing to enter the economy is the fluctuations of economic variables. Such fluctuations lead to uncertainty in investment both in terms of profitability and investment costs. Uncertainty is a phenomenon that is not pleasant for the economy. Economic policymakers in every country should seek to reduce the atmosphere of uncertainty and increase the predictability of economic variables, because the uncertainty hurts the economic decision-making of households, companies, and investors, and as a result, reduces economic growth. On the other hand, a solid banking system is the foundation of sustainable economic growth, because banks are at the center of the financial intermediation process between savers and investors. One of the concepts raised in banking is the concept of financial Health in the banking system. The concept of financial Health as the concept of profitability and continuity of activity and proper performance of banks is of great importance in all economic sectors. All economic trustees tend to monitor the financial Health of these units because the economic situation is generally affected by the way banks operate and their Health. On the one hand, as an economic unit that can be deposited and collects the liquidity of society members and pays it in the form of facilities to various groups of economic units, and is the driving factor of the economic cycle, and on the other hand, deciding on the rate of deposits and facilities to change behavior It leads to economic reactions. According to the existing literature, political and Economic Uncertainty can affect the risk and stability of the banking sector from internal and external aspects. From the intra-systemic point of view, uncertainty leads to more conservative decisions of managers through the reduction of risk-taking behavior. In addition, it affects banks' risk through uncertainty and increases information asymmetry in the banking sector. Considering the importance of the banking sector in Iran's bank-oriented economy, in this research, an attempt is made to examine the Economic Uncertainty index on the stability of the country's financial banking system. Methods In this regard, inflation uncertainty as an Economic Uncertainty index and tax revenue uncertainty as uncertainty indices were calculated using generalized autoregressive and conditional heterogeneity variance models. In the following, the effect of these indicators on the Health stability of the financial system was examined. Results The results of this research show a negative and significant relationship between inflation uncertainty and exchange rate uncertainty with financial system Health stability, however, the uncertainty coefficient of tax revenues is not statistically significant. Conclusion Economic Uncertainty can be mentioned among the factors affecting the stability of the Health of the financial system. Considering the importance of the issue in the country, in this research, an attempt was made to examine the stability of the Health of the financial system from the perspective of the impact of uncertainty indicators on it. The results of the final estimation of the model show that Economic Uncertainty (inflation uncertainty index) has had a negative and significant impact on the Health stability of the financial system, and with the increase of Economic Uncertainty, the vulnerability of the banking sector increases. This result shows the influence of the financial Health of the country's banking system on macroeconomic stability. In general, it can be concluded that the experience of the financial crisis and the destructive effects caused by the transfer of the crisis from the monetary sector to the real sector of the economy, global efforts in the field of improving the quality of monitoring the financial Health system and being on the path of financial Health, addressing the issue of Health indicators Financial systems and its influence on the efficiency of financial systems are of great importance. In examining the Health of financial systems, choosing and determining indicators is one of the key steps. low stability or instability of the Health of the financial system and bankruptcy, a sharp decrease in the supply of financial resources that provide capital, credits, and pressure on companies and households to adjust their financial balances, a decrease in customer confidence (and in other words, a decrease in the amount of savings) and finally, it leads to a decrease in production volume, income and wealth. Therefore, examining the stability of the Health of the financial system and the factors affecting it in the economy of any country or region (both developed and developing) to help reduce the aforementioned costs and, first, improve economic growth and development inside the country is very important.

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APA: Copy

Hasani, Davood, Fallah Shams Layalestani, Mir Feiz, & ZOMORODIAN, GHOLAMREZA. (2022). The Effect of the Economic Uncertainty Index on the Stability of the Health of the Financial System. RAZI JOURNAL OF MEDICAL SCIENCES (JOURNAL OF IRAN UNIVERSITY OF MEDICAL SCIENCES), 29(8 ), 199-205. SID. https://sid.ir/paper/1123277/en

Vancouver: Copy

Hasani Davood, Fallah Shams Layalestani Mir Feiz, ZOMORODIAN GHOLAMREZA. The Effect of the Economic Uncertainty Index on the Stability of the Health of the Financial System. RAZI JOURNAL OF MEDICAL SCIENCES (JOURNAL OF IRAN UNIVERSITY OF MEDICAL SCIENCES)[Internet]. 2022;29(8 ):199-205. Available from: https://sid.ir/paper/1123277/en

IEEE: Copy

Davood Hasani, Mir Feiz Fallah Shams Layalestani, and GHOLAMREZA ZOMORODIAN, “The Effect of the Economic Uncertainty Index on the Stability of the Health of the Financial System,” RAZI JOURNAL OF MEDICAL SCIENCES (JOURNAL OF IRAN UNIVERSITY OF MEDICAL SCIENCES), vol. 29, no. 8 , pp. 199–205, 2022, [Online]. Available: https://sid.ir/paper/1123277/en

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Scientific Information Database

ISSN: 2588-4824

Journal Paper

The Effect of the Economic Uncertainty Index on the Stability of the Health of the Financial System