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Determinants of Deposit and Credit Euroization in Eastern Europe: A Bayesian Model Averaging Evidence

Author

Listed:
  • Petr Vanek

    (Department of Finance, Faculty of Business and Economics, Mendel University in Brno)

  • Petr Korab

    () (Department of Finance, Faculty of Business and Economics, Mendel University in Brno)

Abstract

The paper investigates the motives of deposit and credit euroisation in Eastern Europe employing Bayesian empirical methodology. We analyse a unique dataset of macroeconomic fundamentals, perception surveys, and institutional quality indicators and deal with the uncertainty in the model by Bayesian model averaging. Apart from traditional fundamental factors, strong institutions are found to be an important driver of both credit and deposit euroisation. Business regulation, corruption environment, administrative costs and country-specific risk impact borrowing and saving behaviour in EURO and should be reflected in designing de-euroisation policies in the region.

Suggested Citation

  • Petr Vanek & Petr Korab, 2018. "Determinants of Deposit and Credit Euroization in Eastern Europe: A Bayesian Model Averaging Evidence," MENDELU Working Papers in Business and Economics 2018-73, Mendel University in Brno, Faculty of Business and Economics.
  • Handle: RePEc:men:wpaper:73_2018
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    References listed on IDEAS

    as
    1. Marijana Ivanov & Marina Tkalec & Maruška Vizek, 2011. "The Determinants of Financial Euroization in a Post-Transition Country: Do Threshold Effects Matter?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(3), pages 230-251, July.
    2. Iftekhar Hasan & Roman Horvath & Jan Mares, 2018. "What Type of Finance Matters for Growth? Bayesian Model Averaging Evidence," World Bank Economic Review, World Bank Group, vol. 32(2), pages 383-409.
    3. Livia Chitu, 2013. "Was Unofficial Dollarisation/Euroisation an Amplifier of the ‘Great Recession’ of 2007–2009 in Emerging Economies?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 55(2), pages 233-265, June.
    4. Evan Kraft, 2003. "Monetary Policy under Dollarisation: The Case of Croatia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 45(3), pages 256-277, September.
    5. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2007. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," MPRA Paper 6759, University Library of Munich, Germany.
    6. Shu Lin & Haichun Ye, 2013. "Does Inflation Targeting Help Reduce Financial Dollarization?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1253-1274, October.
    7. Daude, Christian & Levy Yeyati, Eduardo & Nagengast, Arne J., 2016. "On the effectiveness of exchange rate interventions in emerging markets," Journal of International Money and Finance, Elsevier, vol. 64(C), pages 239-261.
    8. Neanidis, Kyriakos C. & Savva, Christos S., 2009. "Financial dollarization: Short-run determinants in transition economies," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1860-1873, October.
    9. Svatopluk Kapounek, 2017. "The Impact of Institutional Quality on Bank Lending Activity: Evidence from Bayesian Model Averaging," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(5), pages 372-395, October.
    10. Giuseppe De Luca & Jan R. Magnus, 2011. "Bayesian model averaging and weighted-average least squares: Equivariance, stability, and numerical issues," Stata Journal, StataCorp LP, vol. 11(4), pages 518-544, December.
    11. M. Emranul Haque & Kyriakos C. Neanidis, 2009. "Financial Dollarization: Short-Run Determinants in Transition Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 114, Economics, The Univeristy of Manchester.
    12. Magnus, Jan R. & Powell, Owen & Prüfer, Patricia, 2010. "A comparison of two model averaging techniques with an application to growth empirics," Journal of Econometrics, Elsevier, vol. 154(2), pages 139-153, February.
    13. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
    14. Marina Tkalec, 2013. "Monetary Determinants of Deposit Euroization in European Post-Transition Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 89-101, March.
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    More about this item

    Keywords

    Euroization; Bayesian model averaging; currency substitution; foreign currency borrowing; institutional quality;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation

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