Estimation of Inflation and Globalization Nonlinear Vectors by Markov Switching Technique

Examining the effects of inflation and globalization on changes in the growth rate of financial development components is a topic that has attracted the attention of many researchers in recent decades. This is especially important in developing societies, which are mainly plagued by high inflation rates. The quantitative indicators of inflation, globalization and financial development alone are not informative and effective. For this reason, one of the scientific methods for studying economic data is their statistical modeling using nonlinear tools such as Markov switching technique. This article, while examining the advantages of Markov switching technique, uses this method in the form of an econometric model to study the nonlinear effects of inflation and globalization (crossover effects) on financial development in Iran during the period 1988 to 2019. The results show that in both boom and recession regimes, the combined effects of inflation and globalization have a negative impact on the financial development index (banking credit).