Nexus between Remittance, Nonperforming Loan, Money Supply, and Financial Volatility: An Application of ARDL

Abstract

The motivation of the study is to investigate the nexus between Remittance, Nonperforming loan, Money supply, and finical volatility for the period from 1976 to 2017. To do so, study apply unit root test for determining variables order of integration, Lag length criteria test to select optimal lag for empirical test and long-run cointegration test i.e. Autoregressive Distributed Lagged (ARDL). Referring to unit root tests, it is apparent that variables established integration in mixed order i.e. few variables are stationary at level and few variable are at first difference. The results of Bound testing ascertain that the presence of long-run association between financial volatility and selected macro fundaments. Referring to the long-term model estimation, it is palpable that magnitudes from macro fundaments to financial volatility established that money supply in the economy is responsible for financial instability on the other hand, remittance and financial development play critical role in maintaining financial stability in the economy.

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