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Macroeconomics Uncertainty and Banks' Lending Decisions: The Case of Italy

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  • Mario Quagliariello

Abstract

This paper discusses the role that macroeconomic uncertainty plays in banks’ choices regarding the optimal asset allocation. Following the portfolio model proposed by Baum et al. (2005), the paper aims at disentangling how Italian banks choose between loans and risk-free assets when the uncertainty on macroeconomic conditions increases. The econometric results confirm that macroeconomic uncertainty is a significant determinant of Italian banks’ investment decisions, also after controlling for other factors. In periods of increasing turmoil, bank-specific 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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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 06/02.

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Date of creation: Jan 2006
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Handle: RePEc:yor:yorken:06/02

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Fax: (0)1904 323759
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Web page: http://www.york.ac.uk/economics/
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Keywords: Bank; business cycle; uncertainty; lending decisions; GARCH;

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References

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  18. Ciaran Driver & Lorenzo Trapani, 2004. "Cross Section Vs Time Series Measures of Uncertainty: Using UK Survey Data," Econometric Society 2004 North American Summer Meetings 330, Econometric Society.
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  22. Serven, Luis, 1998. "Macroeconomic uncertainty and private investment in developing countries - an empirical investigation," Policy Research Working Paper Series 2035, The World Bank.
  23. Mario Quagliariello, . "Banks' Performance over the Business Cycle: A Panel Analysis on Italian Intermediaries," Discussion Papers 04/17, Department of Economics, University of York.
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Cited by:
  1. Christian Calmès & Raymond Théoret, 2009. "The Impact of Banking Deregulation on Canadian Banks Returns," RePAd Working Paper Series UQO-DSA-wp022009, Département des sciences administratives, UQO.
  2. Caglayan, Mustafa & Xu, Bing, 2014. "Allocation effects of uncertainty on resources in Japan," Economics Letters, Elsevier, vol. 122(1), pages 23-26.
  3. Talavera, Oleksandr & Tsapin, Andriy & Zholud, Oleksandr, 2012. "Macroeconomic uncertainty and bank lending: The case of Ukraine," Economic Systems, Elsevier, vol. 36(2), pages 279-293.
  4. Calmès, Christian & Théoret, Raymond, 2014. "Bank systemic risk and macroeconomic shocks: Canadian and U.S. evidence," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 388-402.
  5. Christian Calmès & Raymond Théoret, 2009. "The Impact of Off-Balance-Sheet Activities on Banks Returns: An Application of the ARCH-M to Canadian Data," RePAd Working Paper Series UQO-DSA-wp032009, Département des sciences administratives, UQO.
  6. Christian Calmès & Raymond Théoret, 2008. "Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ?," RePAd Working Paper Series UQO-DSA-wp042008, Département des sciences administratives, UQO.
  7. Stefano Puddu, 2013. "Real Sector and Banking System: Real and Feedback Effects. A Non-Linear VAR Approach," IRENE Working Papers 13-01, IRENE Institute of Economic Research.
  8. Christian Calmès & Raymond Théoret, 2012. "Bank systemic risk and the business cycle: Canadian and U.S. evidence," RePAd Working Paper Series UQO-DSA-wp022012, Département des sciences administratives, UQO.
  9. Nguyen, James, 2012. "The relationship between net interest margin and noninterest income using a system estimation approach," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2429-2437.
  10. Christian Calmès & Raymond Théoret, 2011. "Bank systemic risk and the business cycle: An empirical investigation using Canadian data," RePAd Working Paper Series UQO-DSA-wp322011, Département des sciences administratives, UQO.

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