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Economic uncertainty, public debt and non-performing loans in the Eurozone: Three systemic crises

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  • Zeqiraj, Veton
  • Gurdgiev, Constantin
  • Sohag, Kazi
  • Hammoudeh, Shawkat

Abstract

Recent systemic crises, from the Global Financial Crisis to Covid19 pandemic, have put geoeconomic uncertainty to the forefront of financial services decision-making and planning. Yet, to-date, research connecting economic policy uncertainty to banking sector risks and performance metrics is lacking. This paper examines the relationship between the Economic Policy Uncertainty Index on the non-performing loans across 19 Eurozone member states, using panel data for 194 banks during the 2001–2021 period. As the crises covered were endogenous to the banking sector regulatory and operational environments, we introduce a novel control for the interaction between crises severity and duration, and banking sector strategic and operating environment. This control is proxied by public debt changes which reflect fiscal measures deployed to ameliorate effects of the crises. We find that rising EPU during the crises is associated with higher NPLs and government debt. We also document how this relationship is changing over time and across different crises.

Suggested Citation

  • Zeqiraj, Veton & Gurdgiev, Constantin & Sohag, Kazi & Hammoudeh, Shawkat, 2024. "Economic uncertainty, public debt and non-performing loans in the Eurozone: Three systemic crises," International Review of Financial Analysis, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:finana:v:93:y:2024:i:c:s1057521924001406
    DOI: 10.1016/j.irfa.2024.103208
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    More about this item

    Keywords

    Covid-19; Eurozone; NPLs; Government debt; EPU index;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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