Effects of Changes in the Exchange Rates on the Banks\' Profitability in Short-Term and Long Term: VECM Approach (in Persian)

Mohammad Babazadeh (), Farshid Farokhnejad () and Mohammad Ebrahim Aghababaei ()
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Mohammad Babazadeh: Iran
Farshid Farokhnejad: Iran
Mohammad Ebrahim Aghababaei: Iran

Journal of Monetary and Banking Research (فصلنامه پژوهش‌های پولی-بانکی), 2011, vol. 4, issue 9, 205-225

Abstract: In consideration of the importance of foreign exchange rate changes in the banks' operations and their profitability¡ we have attempted to examine the effect of changes in the exchange rates on the bank's operations and their short-term and long-term profitability. In this respect¡ we have applied Error Correction Model to measure this effect. The related data have also been extracted from exchange rate lists and balance sheets of one of the Iranian commercial banks during 2005-2010. In order to enter and analyze raw data¡ E-views software has been used.Test results show that changes in exchange rates have a negative effect on the foreign exchange profitability of banks. While¡ foreign exchange position has a negative effect on profitability. Also¡ according to the adjustment coefficient¡ in presence of shock¡ the model almost takes about 25 days to reach equilibrium. JEL Classification: C53, G29, G23, G21

Keywords: Exchange Rate; Foreign Exchange Profitability; Foreign Exchange Position; Foreign Exchange Resources; VECM (search for similar items in EconPapers)
Date: 2011
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