The Effect of Macroeconomic Variables on Non-Usury Banking in Iran

The non-usury banking system is a selected system for monetary activities in Iran. It is clear that identifying the effective variables on this system can help to have a stable economy with the desirable indicators. This paper evaluates the relationship between some macroeconomic variables with paid Islamic contracts in the non-usury banking system in Iran. The study period was 1991 to 2013 and auto-regressive distributed lags (ARDL) method was used to estimate the model. The independent variables include annual profit rate, real exchange rate, total stock index, producer price index (PPI) and inflation. The result showed that there was a negative relationship between Islamic contracts and annual profit rate and PPI. Also, there was a positive relationship between depended variables with total stock index and real exchange rate. Inflation didnt have a significant relationship with Islamic contracts. Finally, the result of long-run and cointegration estimation showed a high cointegration between variables.