Measuring Credit Gap in Iran: Semi-Structural Approach

In response to the criticisms of purely statistical methods, based on the semi-structural approach, the credit gap in Iran's economy was calculated from 1994 to 2019. For this purpose, the credit trend was specified based on a generational overlap model as a function of potential output, natural interest rate, institutional quality, and the ratio of the young population. Then, the trend and the credit gap were estimated as a state-space system. The results show a significant positive credit gap between 2013 to 2017 and 2014 to 2017. The origin of excessive credit growth in these two periods is different from each other. Also, the impact of structural variables changes on creating the credit gap in different periods was calculated. In addition, the study of financial crises in Iran reveals that this credit gap has good power in predicting crises.