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Private bank deposits and macro/fiscal risk in the euro-area

Michael Arghyrou () and María Dolores Gadea ()
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María Dolores Gadea: Department of Applied Economics, University of Zaragoza

No E2019/6, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: We examine the relationship between private bank deposits and macro/fiscal risk in the euro area. We test three hypotheses: First, private bank deposits relative to Germany are determined by macro/fiscal risk factor. Second, this relationship is time-varying. Third, time-variation is driven by the level of macro/fiscal risk. Our findings validate all three tested hypotheses. They also reveal persistent fragmentation between EMU core and periphery banking systems caused by a deficit of trust in periphery banking systems, unmitigated by the introduction of OMT and European Banking Union. Our findings have implications for the introduction of the European Deposits Insurance Scheme (EDIS), for which they offer tentative support.

Keywords: Private bank deposits; macro/fiscal risk; eurozone; TVP panel; fragmentation (search for similar items in EconPapers)
JEL-codes: F30 F36 F45 G11 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
Date: 2019-02
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