Macroeconomic uncertainty and banks' lending decisions: The case of Italy

Mario Quagliariello

No 615, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper discusses the role that macroeconomic uncertainty plays in banks� decisions on the optimal asset allocation. Using a portfolio model recently proposed in the literature, the paper aims at disentangling how Italian banks choose between loans and risk-free assets when uncertainty on macroeconomic conditions increases. The econometric results confirm that macroeconomic uncertainty is a significant determinant of banks� investment decisions, also after controlling for other factors. In periods of increasing turmoil, banks� 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: 2007-02
New Economics Papers: this item is included in nep-ban, nep-bec, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Macroeconomic uncertainty and banks' lending decisions: the case of Italy (2009)
Working Paper: Macroeconomics Uncertainty and Banks' Lending Decisions: The Case of Italy (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_615_07

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