nep-ifn New Economics Papers
on International Finance
Issue of 2018‒01‒01
one paper chosen by
Vimal Balasubramaniam
University of Oxford

  1. Uncertainty Effects on the Financial Sector: International Evidence By Christopher F Baum; Mustafa Caglayan; Bing Xu

  1. By: Christopher F Baum (Boston College; DIW Berlin); Mustafa Caglayan (Heriot-Watt University); Bing Xu (Heriot-Watt University)
    Abstract: We examine the effects of uncertainty on the financial sector in a multidimensional context. In our investigation, using a large country-level unbalanced panel dataset, we show that inflation uncertainty reduces availability of private sector credit; harms banks' efficiency and operational performance, evidenced by lower returns and increased reliance on non-interest income activities; and distorts sectoral stability, as liquidity and banks' appetite for risk increases. Our findings, based on the full dataset and country splits, are economically meaningful and provide evidence that uncertainty harms the overall health of the financial sector.
    Keywords: Bank returns, economic significance; efficiency; financial depth; liquidity; non-interest income; profitability; stability; uncertainty
    JEL: C22 C23 D81 E51
    Date: 2017–12–09

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