Impact of Macroeconomic Variables upon the Banking System Liquidity

Abstract

In this paper we analyzed the impact of macroeconomic factors on bank liquidity for a particular group of countries recently affected by adverse economic and financial conditions - Greece, Portugal, Spain, Italy, Croatia and Cyprus. Applying General Method of Moments (GMM) on a panel of 40 commercial banks over the period 2005q1-2011q4 we found that macroeconomic factors determine liquidity level are inflation rate, public deficit, unemployment rate, gross domestic product and liquidity ratio from the previous period. Inflation rate and liquidity in the previous period have the most significant impact while gross domestic product has the least impact.