Investigating the Asymmetric Effect of Public Debt on Financial Development in Iran

Document Type : Research Paper

Authors

1 MA in Economics, University of Bojnord

2 Assistant Professor of Economics, University of Bojnord

3 Assistant Professor of Economics, University of Bojnord.

10.22051/ieda.2024.46282.1402

Abstract

Public debt is a government-related variable that links several successive governments. Each government may have different opinions and priorities regarding the application of financial policies in the economy, including the level or composition of public expenditures. The purpose of this article is to investigate the asymmetric effect of public debt on financial development in Iran during the period 1973 to 2021. For this purpose, after performing relevant tests, using the non-linear autoregressive distributed lag (NARDL) model, it was observed that in the long term, there is a negative and significant relationship between positive and negative changes in public debt and financial development index in Iran. At the same time, the coefficient of positive changes in public debt is smaller than its negative changes; This means that the reduction of public debt has a greater effect on the development of the financial sector compared to its increase. Also, the results indicate a negative and significant effect of the interest rate on the financial development index.

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