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Determinants of Foreign Currency Borrowing in the New Member States of the EU

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    Abstract

    The paper empirically investigates the determinants of foreign currency borrowing by the private sector in the new member states of the European Union. The authors find that striking differences in patterns of foreign currency borrowing between countries are explained by the extent to which domestic banks finance credit expansion from abroad, the level of deposit dollarization, and the interest rate differential. Joining the EU appears to have played an important role, by providing direct access to foreign funding, offering hedging opportunities through greater trade openness, lending credibility to exchange rate regimes, and raising expectations of imminent euro adoption. The empirical evidence suggests that regulatory policies to slow foreign currency borrowing have had only limited success.

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    Bibliographic Info

    Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

    Volume (Year): 59 (2009)
    Issue (Month): 3 (August)
    Pages: 216-228

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    Handle: RePEc:fau:fauart:v:59:y:2009:i:3:p:216-228

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    Keywords: foreign currency borrowing; new EU member states; Central and Eastern Europe;

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    Cited by:
    1. Stephan Barisitz, 2011. "Nonperforming Loans in CESEE – What Do They Comprise?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 46-68.
    2. Fidrmuc, Jarko & Hake, Mariya & Stix, Helmut, 2013. "Households’ foreign currency borrowing in Central and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1880-1897.
    3. Afees Salisu & Idris Ademuyiwa & Basiru Fatai, 2013. "Modelling the Demand for Money in Sub-Saharan Africa (SSA)," Economics Bulletin, AccessEcon, vol. 33(1), pages 635-647.
    4. repec:onb:oenbwp:y::i:171:b:1 is not listed on IDEAS
    5. Ostry, Jonathan D. & Ghosh, Atish R. & Chamon, Marcos & Qureshi, Mahvash S., 2012. "Tools for managing financial-stability risks from capital inflows," Journal of International Economics, Elsevier, vol. 88(2), pages 407-421.
    6. Romain Rancière & Aaron Tornell & Athanasio Vamvakidis, 2010. "Currency Mismatch and Systemic Risk in Emerging Europe," PSE - G-MOND WORKING PAPERS halshs-00967419, HAL.
    7. Crespo Cuaresma, Jesús & Fidrmuc, Jarko & Hake, Mariya, 2014. "Demand and supply drivers of foreign currency loans in CEECs: A meta-analysis," Economic Systems, Elsevier, vol. 38(1), pages 26-42.
    8. Herman Kamil, 2012. "How Do Exchange Rate Regimes Affect Firms' Incentives to Hedge Currency Risk? Micro Evidence for Latin America," IMF Working Papers 12/69, International Monetary Fund.

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