Historically, the development of the financial sector has been an indispensable driver of economic growth. In the aftermath of the Great Recession, there is a pressing need to reassess the role of the financial sector in the determination of economic growth. Using a dynamic panel framework, our analysis covers 34 European and Commonwealth of Independent States economies for the period 1998–2014 and controls for the role of macroeconomic and institutional variables. Our evidence suggests that the potential benefits of the financial sector finance may have dramatically reversed in recent years, resulting in “un‐creative destruction.” The results suggest, tentatively, that there has been a severance of the link between the financial sector and the real economy. The results, however, vary according to the level of economic development across the European and Commonwealth of Independent States economies. In the case of developing market economies, the financial intermediation proxies are not significant in explaining economic growth. The effect of changes in investment expenditure, the money supply, wages, unit labour costs, and trade openness is found to be strong and in line with a priori expectations across all country samples. Notably, government consumption is also found to be a significant driver of economic growth, except in the developing market economies in the period following the Great Recession. In line with the growing consensus in other research areas, we provide evidence of a robust role for the institutional framework proxied by the quality of governance in determining economic development.
This paper aims to investigate the determinants of nonperforming loans in the Romanian banking sector by means of time series modelling. It is motivated by the hypothesis that macroeconomic-cyclical indicators, monetary aggregates, interest rates, financial markets, and bank-specific variables influence the nonperforming loans in the Romanian banking system. Using monthly series that span from December 2001 to November 2010, we cover both the booming period and the recent financial crisis. Given the significant presence of the Greek banks in Romania, the novelty of the paper lies in the introduction of variables that proxy the Greek crisis. Thus, we examine the existence of a potential transmission channel to the Romanian banking system by investigating the impact of the Greek crisis to the Romanian nonperforming loans. Our findings indicate that macroeconomic variables, specifically the construction and investment expenditure, the inflation and the unemployment rate, and the country's external debt to GDP and M2 jointly with Greek crisis-specific variables influence the credit risk of the Romanian banking system. The results have several implications for policymakers, regulators, and managers as the most recent published stress tests on the Romanian banking system are based on end 2008 data.
This paper provides empirical evidence on the interrelation between residential property prices and business cycle relationship by combining panel data and time series methodologies to offer a contextual framework on the residential property prices for 7 advanced OECD economies. Initially, we apply a panel methodological framework using quarterly data over the period 2002-2015 that builds upon the interaction of economic fundamentals with financial variables. Additionally, novel evidence is provided on the detection of property price bubbles that have been manifested in each individual country of the sample through the use of time series methodologies developed by Phillips, Wu and Yu (2011) and Phillips, Shi and Yu (2015). The short-run dynamic panel framework provides a robust exploratory platform shedding light on the determinants of property prices (real gdp, bank credit growth, long-term bond yields and real effective exchange rate) whilst the bubble detection methodologies provide evidence on the impact of credit-driven economies on the propagation of housing booms and can serve as warning signals of potential formation of housing bubbles jointly with economic fundamentals, other factors and methodologies.
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