The Twin Crises in Iranian Economy and Its Determination during 1980-2018

Abstract

The coincidence of banking and currency crises since the 1990s has attracted the attention of many economists to the causal relationship between these them. The aim of the current paper is to determine the potential indicators of banking and current crises and also, their causality in the Iranian economy during the 1980-2018 period. For this purpose, we first examine different developments in the Iranian economy over the last four decades. Then, two types of variables including multi-categorical and dummy variables are extracted from exchange market pressure index (EMPI) and money market pressure index (MMPI). From the empirical results, we found that the two crises could occur closely together in the same periods. According to the Ordered Logit and Logit model, the results showed that the impact of the currency crises on banking crises was positive and statistically significant, but banking crises did not lead to currency crises when banking crises were peroxide as the dependent variable. Also, granger causality test showed that there was some one-way causality from EMPI to MMPI.