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Explaining the Differences between Local Currency versus FX-denominated Loans and Deposits in the Central-Eastern European Economies

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  • Judit Temesváry

    (Department of Economics, Hamilton College)

Abstract

Foreign currency-based loans and deposits became very popular in Central-Eastern European countries (CEECs) over the 2000-2011 period. This paper employs a structural approach to simultaneously examine the demand-side (consumer-related) and supply-side (bank-related) determinants of the quick spread of FX-based banking. The econometric analysis uses a unique newly constructed dataset on FX and domestic currency loans, deposits and interest rates, covering 16 CEECs overtime. Results show that deregulation and cheap funding from parents abroad helped fuel FX lending. There is substantial heterogeneity across market segments, currencies and maturities. Corporate sector FX lending is fundamentally different from retail and mortgage markets.

Suggested Citation

  • Judit Temesváry, 2014. "Explaining the Differences between Local Currency versus FX-denominated Loans and Deposits in the Central-Eastern European Economies," CERS-IE WORKING PAPERS 1405, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1405
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank lending; Interest rate choices; Discrete choice; Simultaneous equations; Cross-country analysis;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • 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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