Investigating the Interactive Effects of Monetary and Macroprudential Policies on the Stability of the Banking System: Evidence from Iranian Economy

The main objective of this study is to investigate the interactive effects of monetary and macroprudential policies on the stability of Iranian banking system. For this purpose, the effects of monetary and macroprudential policies and interactive of these two policies have been evaluated using the annual time series data of 24 private and government banks of Iran during the period of 2007-2019 and using generalized moments method (GMM).The results show that the monetary policies have significantly caused the instability of the banking system, and the macroprudential policies have significantly increased the stability of the banks. Also, empirical findings of the research show that, the interaction of monetary policies and macroprudential has a positive and significant effect on the stability of banks. This result indicates that the implementation of macro reserve policies in Iran has caused the effects of monetary policies to be modified on the instability of banks. Hence, it is necessary for the economic policy makers to consider these interactions when designing monetary and macro prudential policy interventions. In fact, economic policymakers are advised to use macroprudential policies to strengthen the stability of the banking system when implementing expansionary monetary policies.