Current account and credit growth: The role of household credit and financial depth

Ekinci, Mehmet Fatih; Omay, Tolga

doi:10.1016/j.najef.2020.101244

Cited by 13 publications

(5 citation statements)

References 43 publications

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“…In addition, excessive lending can lead to a significant deterioration of the current account balance. Thus, Ekinci and Omay clarified that the growth rates of total lending and lending to households, in contrast to the growth of corporate lending, have a more substantial negative effect on the current account balance at a low level of financial depth [30]. This is consistent with the statement of the too much finance hypothesis.…”

Section: Benefits and Drawbacks Of Financial Deepeningsupporting

confidence: 71%

Financial Depth-Economic Growth Nexus in Ukraine

2022

Problems of Innovation and Investment Development

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This book is dedicated to the ongoing debate on the nature of the relationship between financial depth and economic growth. It addresses the theoretical underpinnings of financial depth and reflects the changes in the nature of financial depth-economic growth nexus before and after the GFC. The distinctions between the financial depth-economic growth nexus in Ukraine and other countries, based on their income level, are identified. The dynamics and structure of Ukraine's state lending and debt are examined in order to show mutual connections between financial depth, economic growth and debt burden. The empirical study of the financial depth-economic growth nexus has allowed revealing that "too much finance" hypothesis does not hold for Ukraine, meanwhile, confirming the existence of the relationship between financial openness and financial deepening. The study is concluded with the analysis of the impact of war on the financial depth-economic growth nexus in Ukraine. This book will be a valuable resource for graduate students and academic researchers whose focus is on the financial and economic development.

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Section: Benefits and Drawbacks Of Financial Deepeningsupporting

confidence: 71%

Financial Depth-Economic Growth Nexus in Ukraine

2022

Problems of Innovation and Investment Development

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“…Similarly, Koong et al (2017) explored relations between credit expansion and financial stability in Malaysia and conjectured that business credit growth had an adverse impact on financial stability, while it was not confirmed that an increase in household credit had a similar effect. Interestingly, a recent study of advanced and emerging economies by Ekinci and Omay (2020) found the contrary. Particularly, an increase in household credit growth led to notable deterioration in the current account balance, with more profound effect for the countries with lower levels of financial depth, while such relation was not identified for business loans.…”

Section: Literature Reviewmentioning

confidence: 87%

Financial stability aspects of monetary policy transmission in developing countries: empirical evidence from Kazakhstan

Ybrayev

2022

IJDI

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Purpose This study aims to determine whether the transmission of monetary policy to the real economy depends on the structural conditions of financial stability. In particular, the paper shows that the effects of shocks to financial stability on output and inflation is conditional on the state of credit in the economy, measured broadly as a credit-to-GDP. Design/methodology/approach The authors use a threshold vector autoregression model with Bayesian techniques to investigate the impact of private nonfinancial sector credit on the dynamic relationship between financial conditions, monetary policy transmission mechanism and macroeconomic performance in Kazakhstan from 2005:Q1 to 2020:Q1. Findings In the modeled threshold vector autoregression (VAR) specification, the authors document that when the credit-to-GDP gap is low or the credit is below its trend, an increase to the interest rate leads to a short-term economic expansion. However, when the credit-to-GDP gap is high or the nonfinancial credit is above its trend, a tightening in monetary policy leads to an economic contraction with domestic financial conditions being weaker compared to a low credit environment. Originality/value The outcome is consistent with the related literature, which argues that a more sustained increase in credit is followed by a sharper economic contraction, but only when the economy is in the high credit state. These results highlight that financial stability measures (e.g. credit state) is important to take into account when conducting monetary policy in emerging economies.

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“…About the impact of household finance on the macroeconomy, Zhang (2019) established a DSGE model with household debt and concluded that changes in housing demand and negative shocks to risk perceptions in the real estate industry would lead to lower bank net worth, higher deposit and loan spreads, lower investment, and economic downturn [6] . Research by Ekinci (2020) shows that household credit leads to a decline in current account balances, proving the macroeconomic impact of household financial behavior [7] .…”

Section: Literature Review and Theoretical Analysismentioning

confidence: 99%

The Impact of Household Financial Asset Allocation on Regional Bank Risk Spillovers

Li¹,

Yusoff²

2022

Proceedings of the International Conference on Information Economy, Data Modeling and Cloud Computing, ICIDC 2022, 17-19 June 2

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The regional commercial bank is an important part of the Chinese multi-level financial market. In recent years, the risks of regional commercial banks have been gradually exposed, which can easily lead to the accumulation of systemic risks. This paper takes the impact of household financial management on the scale of systemic risk overflow of regional commercial banks as the research object, takes the data of China's household financial survey as the data source of household financial asset allocation, and uses market volatility, liquidity spread, term spread and credit spread are used as state variables to measure the level of the overflow of systemic risk of regional banks by the method of CoVaR, and on this basis, we established a fixed-effect model to test the significance of the effect. The research shows that the model constructed in this paper is significant and robust. The higher the proportion of risky assets held by households, the higher the risk overflow of regional commercial banks operating in the region to the banking system. For regional commercial banks, risk control capabilities should be improved; at the same time, government departments should also strengthen monitoring and early warning mechanisms for the dynamic impact of systemic risks.

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Current account and credit growth: The role of household credit and financial depth

Cited by 13 publications

References 43 publications

Financial Depth-Economic Growth Nexus in Ukraine

Financial Depth-Economic Growth Nexus in Ukraine

Financial stability aspects of monetary policy transmission in developing countries: empirical evidence from Kazakhstan

The Impact of Household Financial Asset Allocation on Regional Bank Risk Spillovers

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