Macroeconomics Uncertainty and Banks' Lending Decisions: The Case of Italy

Mario Quagliariello

Discussion Papers from Department of Economics, University of York

Abstract: This paper discusses the role that macroeconomic uncertainty plays in banks’ choices regarding the optimal asset allocation. Following the portfolio model proposed by Baum et al. (2005), the paper aims at disentangling how Italian banks choose between loans and risk-free assets when the uncertainty on macroeconomic conditions increases. The econometric results confirm that macroeconomic uncertainty is a significant determinant of Italian banks’ investment decisions, also after controlling for other factors. In periods of increasing turmoil, bank-specific ability to accurately forecast future returns is hindered and herding behaviour tends to emerge, as witnessed by the reduction of the cross-sectional variance of the share of loans held in portfolio.

Keywords: Bank; business cycle; uncertainty; lending decisions; GARCH (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-bec, nep-fin, nep-fmk and nep-mac
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Macroeconomic uncertainty and banks' lending decisions: the case of Italy (2009)
Working Paper: Macroeconomic uncertainty and banks' lending decisions: The case of Italy (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:06/02

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