Iranian Economic Review

Iranian Economic Review

Financial Complexity: Evidence from Iran

Document Type : Research Paper

Authors
Department of Economics, Yazd University, Yazd, Iran.
Abstract
In recent years, technological advances have increased complexity across many domains of human life, including the economy and its subsectors such as finance. These developments have posed challenges for many economies, including Iran. This study investigates financial complexity in the Iranian economy over the period 2005–2021. To this end, an adjacency matrix for Iran’s financial sector is constructed using World Bank data in order to depict the interconnectedness and complexity of the country’s financial system. The resulting financial graph indicates that the capital market exerts a weaker influence than the money and insurance markets, whereas among financial institutions, banks and other depository institutions play a central role in the country’s financial system. The government and state-owned banks, channeling funds obtained from the banking sector, also play a significant role in Iran’s financial system. Using McCabe's method, the complexity number for the financial graph of Iran was calculated to be 79, which indicates a very high level of complexity and also high systemic risk in the financial system of Iran.
Keywords
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