The Impact of Inflation on Financial Sector Performance: Evidence from OECD Countries

Abstract This research article investigates the relationship between inflation and the performance of the financial sector within OECD countries, a group critical to global economic stability. The financial sector is a basis of sustainable economic growth, and its performance is heavily influenced by the macroeconomic environment, particularly inflation. This study analyses how inflation, alongside other significant factors such as real GDP growth, government size, trade openness, and interest rates, impacts the financial sector development. By examining data from 38 OECD countries over a 20-year period (2002-2021), this research employs a comprehensive approach using both static and dynamic panel regression models. The results consistently indicate a negative correlation between inflation and the key financial sector variables, suggesting that higher inflation levels undermine financial sector performance. These findings underscore the importance of maintaining low and stable inflation to foster an efficient and stable financial sector. This study makes a valuable contribution to the literature by focusing specifically on OECD countries, which are often seen as benchmarks for economic policies and financial systems.