Weak instruments in estimating business cycle effects on banks' interest income

Moritz Hahn and Edward O'Brien

Applied Economics Letters, 2012, vol. 19, issue 14, 1417-1420

Abstract: This article explores the link between the real business cycle and core bank earnings. Using bank-level data and an estimation technique which corrects for weak instruments, evidence confirms that pre-provision Net Interest Income (NII) is determined by the term structure of interest rates rather than output fluctuations. Output growth is only found to be significant when Loan-Loss Provisions (LLP) are taken into account.

Date: 2012
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DOI: 10.1080/13504851.2011.631884

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