EFFECT OF ISLAMIC FINANCIAL SYSTEM STABILITY ON ECONOMIC PERFORMANCE IN INDONESIA: EVIDENCE FROM DYNAMIC FACTOR MODEL AND NARDL APPROACHES

This study constructs the financial stability indexes of Islamic and conventional banking systems for Indonesia using dynamic factor model. Both are then linked to economic performance in by employing a nonlinear autoregressive distributed lag (NARDL) We contribute literature investigating possibility asymmetric linkages between both system performance. The constructed broad range macro-financial variables can capture 2008-2009 global crisis 2020-2021 COVID-19 pandemic periods. most significant results posit that positive negative shocks long run increase decrease performance, respectively. However, banks is negatively associated with run. quantile regression also demonstrate statistically throughout all quantiles promoting It plays greater role at lower diminishes when has been achieved high level. determinant quantiles. Results highlight especially deepening would enhance