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Macroeconomic uncertainty and banks' lending decisions: The case of Italy Author info | Abstract | Publisher info | Download info | Related research | Statistics Mario Quagliariello () (Banca dÂ’Italia)
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This paper discusses the role that macroeconomic uncertainty plays in banksÂ’ decisions on the optimal asset allocation. Using a portfolio model recently proposed in the literature, the paper aims at disentangling how Italian banks choose between loans and risk-free assets when uncertainty on macroeconomic conditions increases. The econometric results confirm that macroeconomic uncertainty is a significant determinant of banksÂ’ investment decisions, also after controlling for other factors. In periods of increasing turmoil, banksÂ’ ability to accurately forecast future returns is hindered and herding behaviour tends to emerge, as witnessed by the reduction of the cross-sectional variance of the share of loans held in portfolio.
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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number
615.
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Date of creation: Feb 2007Date of revision:
Handle: RePEc:bdi:wptemi:td_615_07Contact details of provider: Postal: Via Nazionale, 91 - 00184 Roma Web page: http://www.bancaditalia.it More information through EDIRC
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Keywords: bank ; business cycle ; uncertainty ; lending decisions ; GARCH ; Other versions of this item:
Find related papers by JEL classification: E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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