Analyzing the Asymmetric Effects of Monetary Policies on Bank Liquidity Creation in Iran’s Banking Sector Considering Bank Financing Structure

Document Type : Original Article

Authors

1 Assistant Professor of Economics, Faculty of Humanities, University of Zanjan, Zanjan, Iran

2 PhD Candidate in Economics, Faculty of Economics and Management, University of Tabriz, Tabriz, Iran

3 MA in Economics, Faculty of Humanities, University of Zanjan, Zanjan, Iran

Abstract

This study investigates the asymmetric effects of monetary policies on bank liquidity creation, accounting for the role of bank financing diversification. Employing panel data for 17 state-owned and private banks operating between 2008 and 2023, the analysis utilizes the nonlinear autoregressive distributed lag model to explore these dynamics. The results confirm the presence of a long-run and asymmetric relationship among the model’s variables. Positive and negative shocks to the statutory reserve ratio exhibit distinct nonlinear effects on liquidity creation. Specifically, positive shocks significantly reduce liquidity creation in the long run, while negative shocks considerably enhance it. However, these effects are statistically insignificant in the short run. In contrast, the bank’s debt-to-central bank ratio demonstrates symmetric effects, with both positive and negative shocks significantly increasing long-run liquidity creation, but with no significant short-run impact. Additionally, the Herfindahl-Hirschman Index (HHI), employed as a proxy for bank financing diversification, shows a significant positive effect on liquidity creation in the long run across both models, yet remains statistically insignificant in the short run. These findings imply that banks with more diversified financing sources are less vulnerable to monetary policy changes regarding liquidity creation.

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