The Impact of Macroeconomic Variables on Financial Asset Shortage in Iran

Financial assets are particularly important in the saving -investment process¡ because investments in financial assets is considered as the engine of production and economic growth in each country. Economic growth and production increase in a country depends on its ability to produce financial assets.
Financial asset shortage certainly creates defects in the market. In this case¡ either the savings are not sensitive to interest rates¡ or supply assets alone are not responsive to interest rates. Also¡ capital markets are inefficient. For example¡ non-competitive markets¡ increase transaction costs¡ asymmetric information and poor performance of property rights. These problems are most severe in emerging markets¡ and prevent the issuance of financial assets. However¡ market efficiency as a result of investment constraints is caused by the imperfect mobility of capital in the world as well as deviations in the valuation of assets.
Asset shortage index is determined according to the supply and demand for financial assets. The domestic demand for assets is determined by gross domestic savings (i.e. all accessible resources for investment)¡ while the supply of financial assets is shown as published domestic bonds¡ stock loans¡ foreign assets and net domestic assets by foreign investors and changes in short-term deposits. Asset shortage index that shows asset shortage and available financial instruments for investment in the society iscalculated by the following formula:
Where S is the domestic national savings¡ B is the bond issuance in the domestic market¡ E is the equity issuance in the domestic market¡ L is the loan issuance in the domestic market¡ and S.D. is the short-term deposits. NPFA is the net purchase of foreign financial assets by domestic residents¡ which reflects the position of domestic investors’ holdings of foreign assets (debt¡ equity¡ financial derivatives¡ and other investments) minus the net position of foreign investors’ holdings of domestic assets. The sum of B¡ E¡ L¡ ΔS.D¡ and NPFA is therefore a reflection of the supply of financial assets.
In Iran¡ supply growth in financial assets is less than the demand growth assets¡ and Iran''s economy is dominated by the relative asset shortage. To check this¡ the effectiveness of some of the macroeconomic variables on the asset shortage index is evaluated during the period1991-2010. The used specified model is ARDL.
The results of the estimated equation above show that the long-term coefficients of all variables in the model are statistically significant. The coefficient of variables¡ Iran GDP growth rate and the global GDP growth rate is negative¡ which reflects the fact that economic growth in Iran and global economic growth relative have the potential to reduce the asset shortage index. Also¡ the coefficients of the variables of inflation rate¡ the real exchange rate¡ interest rate fluctuations¡ government and financial balance in the long-term trend have positive signs. These positive coefficients indicate that a stable economic environment¡ stable exchange rate policy (stability of the exchange rate greatly reduces the risk policy)¡ lack of volatility of interest rates¡ and a better financial position encourage the issuance of new financial assets and a decrease in the asset shortage index.
Short-term and long-term results of the estimations through ARDL method shows that a significant positive relationship exists between changes in interest rates and asset shortage. The results also show that inflation has a significant positive impact on the asset shortage index. According to the results obtained from the estimated long-run equilibrium relationship and the dynamic model¡ an inverse correlation between economic growth and financial assets shortage was confirmed. Therefore¡ higher economic growth can decrease financial asset shortage index both in short run and long run. In addition¡ the direct and significant impact of real exchange rate on asset shortage index was also confirmed. Of course¡ the real exchange rate in the short run with no lags has a negative coefficient and with a lag has a positive coefficient. But the whole result of these two coefficients has a positive value. According to the results¡ the government deficit has a direct impact on reducing the financial asset shortage both in the short run and long run. Finally¡ it should be noted that a significant inverse correlation exists between the growth rate of world GDP and the financial asset shortage in Iran.