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.