The Contagion Effect in Lending and Economic Stability: A Study of the European Sovereign-Debt Crisis and its Global Impact

Yuki MASUJIMA, Winnie P. H. POON

Research output: Other Conference ContributionsPresentationPresentation

Abstract

This paper investigates whether a lender’s nationality and issuing currency of loans matter for the gross domestic product (GDP) growth volatility of 153 loan-receiving countries from seven major lending countries including Italian and Spanish banks in 1981-2011. The results suggest that foreign banks’ local currency credit appears to dampen a host country’s GDP growth volatility which is used to indicate economic stability (or instability). The nationality of lenders does not appear to have a significant impact on the GDP growth volatility of borrowers. Instead, the currency of loans, including switches to the Euro, is probably more important than the nationality of lenders. Specifically, the finding of the study suggests that deleveraging in Euro credit leads to a rise in a host country’s GDP growth volatility in Euro zone. Results from the contagion effect in lending and economic stability provide insights about the potential impacts of the current European Financial Crisis on the global financial markets through international credit channel.
Original languageEnglish
Publication statusPublished - 26 Apr 2013
EventInternational Conference on the Global Financial Crisis: European Financial Markets and Institutions - Chilworth Manor, Southamption, United Kingdom
Duration: 25 Apr 201326 Apr 2013
https://www.ocs.soton.ac.uk/index.php/financialcrisisconference/conference2013

Conference

ConferenceInternational Conference on the Global Financial Crisis
CountryUnited Kingdom
CitySouthamption
Period25/04/1326/04/13
Internet address

Fingerprint

Contagion effect
Lending
Economic stability
Growth volatility
Gross domestic product
Sovereign debt crises
Nationality
Currency
Loans
Credit
Financial crisis
Euro zone
Foreign banks
International financial markets
Credit channel
Economic instability

Cite this

MASUJIMA, Y., & POON, W. P. H. (2013). The Contagion Effect in Lending and Economic Stability: A Study of the European Sovereign-Debt Crisis and its Global Impact. International Conference on the Global Financial Crisis, Southamption, United Kingdom.
MASUJIMA, Yuki ; POON, Winnie P. H. / The Contagion Effect in Lending and Economic Stability: A Study of the European Sovereign-Debt Crisis and its Global Impact. International Conference on the Global Financial Crisis, Southamption, United Kingdom.
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MASUJIMA, Y & POON, WPH 2013, 'The Contagion Effect in Lending and Economic Stability: A Study of the European Sovereign-Debt Crisis and its Global Impact' International Conference on the Global Financial Crisis, Southamption, United Kingdom, 25/04/13 - 26/04/13, .

The Contagion Effect in Lending and Economic Stability: A Study of the European Sovereign-Debt Crisis and its Global Impact. / MASUJIMA, Yuki; POON, Winnie P. H.

2013. International Conference on the Global Financial Crisis, Southamption, United Kingdom.

Research output: Other Conference ContributionsPresentationPresentation

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AB - This paper investigates whether a lender’s nationality and issuing currency of loans matter for the gross domestic product (GDP) growth volatility of 153 loan-receiving countries from seven major lending countries including Italian and Spanish banks in 1981-2011. The results suggest that foreign banks’ local currency credit appears to dampen a host country’s GDP growth volatility which is used to indicate economic stability (or instability). The nationality of lenders does not appear to have a significant impact on the GDP growth volatility of borrowers. Instead, the currency of loans, including switches to the Euro, is probably more important than the nationality of lenders. Specifically, the finding of the study suggests that deleveraging in Euro credit leads to a rise in a host country’s GDP growth volatility in Euro zone. Results from the contagion effect in lending and economic stability provide insights about the potential impacts of the current European Financial Crisis on the global financial markets through international credit channel.

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MASUJIMA Y, POON WPH. The Contagion Effect in Lending and Economic Stability: A Study of the European Sovereign-Debt Crisis and its Global Impact. 2013. International Conference on the Global Financial Crisis, Southamption, United Kingdom.