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Trade policy uncertainty and bank lending in the euro area

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  • Avril, Pauline
  • Horan, Aoife
  • Pancaro, Cosimo

Abstract

We provide evidence on the impact of a trade policy uncertainty shock on euro area bank lending using panel local projections. We show that an increase in trade policy uncertainty reduces bank lending, but the effect is relatively short-lived. We also show that the lending of banks that have greater exposure to firms that are more reliant on input from or on export to markets outside of the European Union declines more materially after a trade policy uncertainty shock. Finally, we find that this shock has a significant effect only on the lending of banks with lower capital buffers.

Suggested Citation

  • Avril, Pauline & Horan, Aoife & Pancaro, Cosimo, 2026. "Trade policy uncertainty and bank lending in the euro area," Economics Letters, Elsevier, vol. 258(C).
    • Handle: RePEc:eee:ecolet:v:258:y:2026:i:c:s0165176525005270
    DOI: 10.1016/j.econlet.2025.112690
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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