Does Bank Deposits Volatility React to Political Instability in Developing Countries?

Abstract

This study examines empirically the relationship between the volatility of bank deposits and political instability using panel data covering more than 80 developing countries over the period 1970 to 2020. We use fixed-effects models that account for the serial correlation and spatial dependence, GMM regressions and staggered DiD to deal with the endogeneity and causality issues. Though tentative, our regressions reveal that political instability could increase the volatility of bank deposits. Our finding also confirms the importance of interest rate, suggesting a potential interaction with political instability and political violence.

Keywords: Bank deposit, Volatility, Political instability

JEL Classification: G21, G28