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Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality

Author

Listed:
  • Inessa Love

    () (University of Hawaii at Manoa Economic Research Organization)

  • Rima Turk Ariss

    () (Lebanese American University)

Abstract

This paper investigates macro-financial linkages in Egypt using two complementary methods, assessing the interaction between different macroeconomic aggregates and loan portfolio quality in a multivariate framework as well as through a panel vector autoregressive method that controls for bank-level characteristics. Using a panel of banks over 1993-2010, the authors find that a positive shock to capital inflows and growth in gross domestic product improves banks’ loan portfolio quality, and that the effect is fairly similar in magnitude using the multivariate and panel vector autoregressive frameworks. In contrast, higher lending rates may lead to adverse selection problems and hence to a drop in portfolio quality. The paper also reports that a larger market share of foreign banks in the industry improves loan quality.

Suggested Citation

  • Inessa Love & Rima Turk Ariss, 2013. "Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality," Working Papers 201310, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:201310
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    References listed on IDEAS

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    More about this item

    Keywords

    Macroeconomic Shocks; Banks; Loan Quality; Panel Vector Autoregression;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • 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; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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