The Impact of Macroeconomic Factors on Banks’ Liquidity from 2008 to 2020

Abstract

Liquidity is fundamental to the well-being of financial institutions, particularly banks. It determines the growth and development of banks as it ensures the proper functioning of financial markets. This research aims to examine the impact of macroeconomic variables (GDP per capita, inflation rate, and unemployment rate) on banking liquidity in the 28 European Union member countries, Turkey, and Switzerland from 2008 to 2020. The study relied on secondary data from the databases of international organizations, including the World Bank and Eurostat, to compile its sample of 390 observations. Since the research spans numerous states over 13 years, panel data are used, which are estimated using a simple linear regression model using the least squares method. According to the regression findings, GDP per capita and the unemployment rate positively affect bank liquidity, whereas the inflation rate has a negative effect on bank liquidity. Also, the regression analysis did not find any statistically significant impact of GDP per capita and unemployment rate on bank liquidity. This study shows that the inflation rate is a statistically significant macroeconomic variable that affects banking liquidity.

Impact of Macroeconomic Factors on Financial Liquidity of Companies: A Moderation Analysis

“…In conclusion, the results obtained are only partially consistent with theoretical expectations and those of previous studies. In terms of the direct relationships presented in this article, the positive relationship between the inflation rate and corporate liquidity and between the money supply and liquidity confirms the results of earlier studies by Chen and Mahajan [23], which means that it does not confirm studies with opposite results [48]. The positive relationship between the variables is theoretically justified by the assertion that an increase in the money supply, which, according to monetary theory, leads to inflation, is generally associated with growth in the economy, which translates into an increase in corporate performance [71].…”

“…The positive relationship between the variables is theoretically justified by the assertion that an increase in the money supply, which, according to monetary theory, leads to inflation, is generally associated with growth in the economy, which translates into an increase in corporate performance [71]. The positive relationship between the employment ratio and liquidity negates previous findings in this regard [22,48], but finds theoretical justification in the fact that an increase in employment ratio implies greater supply in the labour market, which, by reducing wage pressures, has a beneficial effect on firm performance, including liquidity [71]. The positive relationship between the ratio of internal expenditure on R&D to GDP and liquidity, as presented in this paper, has not been previously investigated by other studies.…”

“…For example, in previous studies, the focus was typically on variables reflecting the overall efficiency of the economic system. However, examination of the relationships with macroeconomic variables from other areas covered in the current study was seldom conducted [9,[18][19][20]22,23,47,48]. These include variables related to the formal and informal institutional environment, as well as variables reflecting the technical environment.…”

“…The study by Qehaja et al [48] also considered the impact of macroeconomic factors on bank liquidity. It revealed that GDP per capita and the unemployment rate have a positive effect on bank liquidity, whereas the inflation rate exerts a negative influence.…”

“…In previous studies, the relationships between macroeconomic variables and firms' performance were typically investigated in terms of variables reflecting the overall efficiency of the economic system. However, the relationships with macroeconomic variables from other areas were rarely investigated [9,[18][19][20]22,23,47,48].…”