An Analysis of Inflation's Impact on the Banking Sector Index in the GCC Countries

This paper investigates the impact of inflation on the banking sector index in the Gulf Cooperation Council (GCC) countries. Using a set of quarterly data from 2008 to 2021, we employ the Autoregressive Distributed Lag (ARDL) model as panel data for (5) countries to test the effects of inflation on the banking sector index. The results indicate that the banking sector index is significantly sensitive to inflation in the GCC countries. There is evidence of a non-linear relationship between inflation and the banking sector index, with a negative short-run effect but a positive long-run effect. The results are robust to a variety of specification tests and other macroeconomic variables. The findings of this study have important implications for decision-makers in the GCC region, as they suggest that GCC countries should pursue policies to reduce inflation to ensure the stability of the banking sector.