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The Role of the Real Exchange Rate in Credit Growth in Central and Eastern European Countries: A Bank-Level Analysis

Author

Listed:
  • Michael Frommel

    (Department of Financial Economics, Ghent University)

  • Murat Midilic

    (Department of Financial Economics, Ghent University)

Abstract
This study analyzes the effects of macroeconomic and bank-level variables on the loan growth of banks in Central and Eastern European countries (CEECs) for the period between 1999 and 2010. Differences between private, state, domestic and foreign banks are analyzed by using the ownership structures of banks. We show that, unlike macroeconomic factors and other bank-level variables, leverage growth and equity growth have consistently significant effects on the loans of both domestic and foreign banks. The real exchange rate turns out to be a significant factor only for foreign banks. The latter result is important in understanding the transmission of global shocks to domestic credit. The results are robust to different specifications.

Suggested Citation

  • Michael Frommel & Murat Midilic, 2016. "The Role of the Real Exchange Rate in Credit Growth in Central and Eastern European Countries: A Bank-Level Analysis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(5), pages 426-452, October.
    • Handle: RePEc:fau:fauart:v:66:y:2016:i:5:p:426-452
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    File URL: http://journal.fsv.cuni.cz/storage/1369_frommel.pdf
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    References listed on IDEAS

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    Cited by:

    1. Maciej Albinowski, 2022. "The role of fractional-reserve banking in amplifying credit booms: Evidence from panel data," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(1), pages 63-88, March.
    2. Zuzana Košťálová & Eva Horvátová & Štefan Lyócsa & Peter Gernát, 2022. "New Credit Drivers: Results from a Small Open Economy," Eastern European Economics, Taylor & Francis Journals, vol. 60(1), pages 79-112, January.

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    More about this item

    Keywords

    credit growth; emerging markets; real exchange rate; leverage;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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