The Effects of Credit Friction on the Productivity Index: Emphasizing Oil Price and Exchange Rate Changes Using the Mixed Data Sampling (MIDAS) Model
Keywords:
Mixed data model with different frequencies (MIDAS), Exchange rate, Oil price, Productivity index, Effects of credit frictionAbstract
Objective: This study aims to examine the effects of credit friction on total factor productivity, with particular emphasis on the role of oil price changes and exchange rate fluctuations in the Iranian economy.
Methodology: This applied study adopts a descriptive–correlational design and employs annual and quarterly data covering the period 1991–2024. Credit friction is measured using the ratio of loan loss provisions to total assets, loan loss reserves to total assets, non-performing loans to total loans, and public debt as a percentage of GDP. Oil prices, exchange rates, and real interest rates are included as control variables. To simultaneously estimate variables with different frequencies, the Mixed Data Sampling (MIDAS) approach is utilized. Prior to model estimation, seasonal and non-seasonal unit root tests, the Phillips–Perron stationarity test, and the Johansen cointegration test are conducted to ensure the reliability of the empirical analysis.
Findings: The MIDAS estimation results indicate that all credit friction indicators have a negative and statistically significant effect on total factor productivity, implying that tighter financial constraints reduce productive efficiency in the manufacturing sector. Oil prices exert a positive and significant impact on productivity, whereas exchange rates and real interest rates show negative and significant effects. The high explanatory power of the model and the statistical adequacy of diagnostic tests confirm the robustness of the empirical findings.
Conclusion: The results highlight that mitigating credit frictions and effectively managing exchange rate and interest rate volatility are essential for enhancing total factor productivity. Accordingly, monetary and fiscal policies should focus on improving firms’ access to financial resources and reducing macroeconomic uncertainty to foster sustainable productivity growth.
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Copyright (c) 2025 Seyed Hamed Mousavian, Majid Afsharirad, Marjan Daman keshideh, Farzaneh Hajihassani (Author)
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