Role of Macroeconomic Indicators in Banking Crisis

This study examines the long run relationship between macroeconomics indicator and bank crisis for the country like Pakistan. The Johansen co-integration approach has been used to inspect the relationship between them. The yearly data has been used from the period 1991 to 2012. The results of co-integration have indicated the long-run association between the macroeconomics variables and bank crisis. The relationship between banking crisis and exchange rate is found to be negative and very significant. The growth rate has also shown highly significant and negative relationship with banking crisis. There is positive relationship between inflation rate and banking crisis. There is need to create sound and fearless environment for the foreign investors, so that they invest in different business, project and stocks. Due to their investment employment opportunities should be created in the country and unemployment will decrease.