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Scirj Volume IV, Issue XI, November 2016 Edition
ISSN: 2201-2796

Long Run Association and Causality between Macroeconomic Indicators and Banking Sector in Pakistan

Muhammad Ahmad Shahid, Lyba Shaheen

Abstract: The study investigated the long run relationship between selected macroeconomic indicators and banking sector index in Pakistan. The selected macroeconomic indicators are Exports, Industrial Production, CPI, KIBOR as short term interest rate, Money Supply (M0), Nominal Exchange Rate between Pakistan and United States of America (USA), Oil Prices and Interest rate on Pakistan Government bond 10 year, as long term interest rate. Monthly time series was used from January, 2009 to August, 2015. Study applied Augmented Dickey Fuller test to determine the stationarity levels for the selected macroeconomic indicators and banking sector index, Phillips-Perron test to validate the results of Augmented Dickey Fuller test, bound testing technique in ARDL model to investigate long run relationship between selected macroeconomic variables and banking sector index. Results suggested presence of long run relationship between macroeconomic variables exchange rate, inflation, oil price and banking sector index in Pakistan. Results of Granger causality test suggested unidirectional causality running from macroeconomic variables KIBOR and oil prices to banking sector index in Pakistan. Further, unidirectional causality was found running from banking sector index to government bond in Pakistan.

Reference this Paper: Long Run Association and Causality between Macroeconomic Indicators and Banking Sector in Pakistan by Muhammad Ahmad Shahid, Lyba Shaheen published at: "Scientific Research Journal (Scirj), Volume IV, Issue XI, November 2016 Edition, Page 20-27 ".

Search Terms: ARDL, Phillips-Perron, ADF, Granger Causality, CPI, KIBOR

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