Assessing the factors affecting liquidity by focusing on the capital adequacy ratio of the banking network and its asymmetric effects

Liquidity , as the most important variable of the money market , has a significant role in economic performance from various aspects and therefore it is important to identify the factors affecting liquidity. Considering that one of the channels to increase liquidity is loans paid by the banking network and the effective role of capital adequacy ratio in the payment of bank loans, in the present study we investigate the effect of capital adequacy ratio on volume of liquidity and its asymmetric effects in 2008:2 -2020:1 by using a nonlinear Autoregressive Distributed Lags model. The results show that increasing the capital adequacy ratio has a reducing effect on the volume of liquidity and compliance with the regulation on the capital adequacy ratio can be one of the key tools to curb the growth of liquidity in the Iranian economy. In addition, the effect of changing the capital adequacy ratio on liquidity is asymmetric. According to the results of the Wald test, increasing the capital adequacy ratio has a stronger effect on liquidity than reducing it. The results also showed that the increase in the amount of non performing loans of the banking network through the channel of reducing the lending capacity of the banking network in both short-term and long-term periods leads to a decrease in liquidity in the country. The increase in the exchange rate has also led to an increase in liquidity in the country in short-term and with two lags. Also, in order to curb the growth of liquidity, an increase in government expenditures should be financed through an increase in tax revenues, not borrowing from the banking network or the use of sovereignty revenues.