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Examining the Degree of Liquidity Endogeneity in Iran:
A Random Forest Regression Approach
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Abolfazl Dehghani    , Kazem Yavari * , Mehdi Hajamini , Mohammad Hassan Zare |
| Faculty of Economics, Management and Accounting, Yazd University & - , kyavari@yazd.ac.ir |
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Abstract: (2 Views) |
| This article examines the contribution of institutions influencing liquidity creation and the degree of its endogeneity in Iran’s economy. Within this framework, the Central Bank is distinguished from the government, private sector, foreign sector, and banking system. Quarterly data from 1996:Q1 to 2022:Q4 were analyzed using random forest regression, and the share of each institution was identified. Findings show that the Central Bank accounts for 35 percent of liquidity creation, while other institutions collectively contribute 65 percent. Among the variables, the Central Bank’s net foreign assets (representing the foreign sector) and the ratio of required reserves to demand deposits (Central Bank) play the most significant role in explaining liquidity behavior. The foreign sector, with a 55 percent share—mainly through oil revenues—has a decisive impact. Proper mechanisms for managing oil revenues could allow control over up to 90 percent of liquidity behavior. In contrast, inflation expectations, despite gaining attention since the 2010s, prove to be relatively insignificant in explaining liquidity dynamics. |
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| Keywords: Liquidity, Endogeneity, Exogeneity, Central Bank, Random Forest Regression |
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Full-Text [PDF 613 kb]
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Type of Study: Research |
Subject:
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