Analyzing the Impact of Macroeconomic Variables on Financial Stability: Evidence from South Asian Economies
Keywords:
South Asian, Macroeconomic Variables, ARDL, PCA, SAARC, financial openness, macroeconomic stability, exchange rate, economic growth
Abstract
This research examines whether macroeconomic variables disturb the financial stability of SAARC countries in 1996-2022 using panel ARDL approach. We shape the financial stability as the dependent variable, and we have developed a PCA index of financial stability (principal component analysis). This study contains of macroeconomic models with a wide choice of possibly related variables for financial stability, using financial flows, financial openness, macroeconomic stability, exchange rate and economic growth on a sample of five countries between 1996 and 2022. Our experimental suggestion proposes that most of the macroeconomic variables have a positive impact on financial stability. Therefore, our outcomes support the view that the development of macro-economic policies and political programs should be part of financial improvement. All these variables may enhance the financial stability of the countries which are under consideration.
References
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Gersl, A., & Hermanek, J. (2008). Indicators of Financial System Stability: Towards an Aggregate Financial Stability Indicator? Prague Economic Papers, 3, 127-142. https://doi.org/10.18267/j.pep.325
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Grauwe, P. D., & Foresti, P. (2016). Fiscal Rules, Financial Stability and Optimal Currency Areas. Economic Letters. https://doi.org/10.1016/j.econlet.2016.07.010
Hallak, I. (2013). Private sector share of external debt and financial stability: Evidence from bank loans. Journal of International Money and Finance, 17-41. https://doi.org/10.1016/j.jimonfin.2012.02.017
Herrero, A. G., & Rio, P. d. (2003). Financial Stability and the Design of Monetary Policy. 34.
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Im, K. S., M. H., Pesaran, & Shin, Y. (2003). Testing for unit roots in heterodeneous panels. Journal of Econometrics, 115, 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7
Issing, O. (2003). Monetary and Financial Stability: Is There a Trade-off? Conference on monetary stability, financial stability and the Business Cycle, March 28-29,2003. Basle: Bank for International Settlements.
Jacobson, T., Molin, J., & Vredin, A. (2001). How can central banks promote financial stability? Economic Review.
jeon, J. Q., & Lim, K. K. (2013). Bank Compitition and Financial Stability: A comparison of commercial banks and mutual savings banks in Korea. Pecific-Basin Fianance Journal, 253-272. https://doi.org/10.1016/j.pacfin.2013.10.003
Karadam, D. Y., & Ocal, N. (2014). Financial Integration and Growth: A Nonlinear Panel Data Analysis. ERC Working Papers in Economics, 35.
Kira, A. R. (2013). The Factors affecting Gross Domestic Produt (GDP) in Developing Countries: The Case of Tanzania. Eurpean Journal of Business and Management, 2222-2839.
Klomp, J., & De Haan, J. (2009). Central Bank Independance and financial Stability. Journal of Financial Stability, 321-338. https://doi.org/10.1016/j.jfs.2008.10.001
Krainer, R. E. (2013). Towards a program for financial stability. Journal of Economic Behaviour & Organization, 207-218. https://doi.org/10.1016/j.jebo.2011.10.011
Le, T. H., Kim, J., & Lee, M. (2015). Institutional Quality, Trade Openness, And Financial Development in Asia: An Empirical Investigation. ADB Economics Working Paper Series, 18. https://doi.org/10.2139/ssrn.2707547
Lee, C. C., & Hsieh, M. F. (2014). Bank reforms, foreign ownership, and financial stability. Journal of International Money and Finance, 204-224. https://doi.org/10.1016/j.jimonfin.2013.09.001
Levin, A., Lin, C., & Chu, C. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7
Ma, Y., & Lin, X. (2016). Financial development and the effectiveness of monetary policy. Journal of Bnaking and Finance, 1-11. https://doi.org/10.1016/j.jbankfin.2016.03.002
Mishkin, F. (1996). Understanding Financial Crisis: A developing country's perspective. NBER Working Paper 5600. National Bureau of Economics Research Cambridge, Mass. https://doi.org/10.3386/w5600
Mohr, B., & Wagner, H. (2011). A Structural Approach to Financial Stability: On the Beneficial Role of Regulatory Governance, 29.
Morales, M., & Estrada, D. (2010). A financial stability index for Colombia. A financial stability index for Colombia, 6, 555-581. https://doi.org/10.1007/s10436-010-0161-7
Morgan, P. J., & Pontines, V. (2014). Financial Stability and Financial Inclusion. ADBI Working Paper Series, 18. https://doi.org/10.2139/ssrn.2464018
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