Impact of Macro Specific Factor and Bank Specific Factor on Bank Liquidity using FMOLS Approach

Abstract

By applying the fully modified ordinary least square (FMOLS), this study examines the impact of bank-specific factor and macro-specific factors on bank liquidity, for the period of 2000 to 2017. The bank specific factors include bank crises, bank size, total deposit, and profitability. While it considers a macro-specific factors GDP, inflation, monetary policy and unemployment. Findings reveal that based on time series data, we suggest that bank-specific and macro-specific factor significantly effect on bank liquidity. Empirical results reported that at 5 percent level of significance total deposit, GDP, bank size and unemployment have a negative impact on liquidity of the bank. While monetary policy, bank crisis and profitability have a positive impact on liquidity. Inflation has an insignificant relation with liquidity. The study reported new facts for increase more clear understanding of liquidity in a developing country like Pakistan.

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