IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v37y2013i6p1880-1897.html
   My bibliography  Save this article

Households’ foreign currency borrowing in Central and Eastern Europe

Author

Listed:
  • Fidrmuc, Jarko
  • Hake, Mariya
  • Stix, Helmut

Abstract

Foreign currency loans represent an important feature of recent financial developments in CEECs. This might pose a serious challenge for macroeconomic stability. Against this background, we study the determinants of foreign currency loans of households, using data on the behavior of households in nine CEECs. Our results reveal that foreign currency loans are driven by households’ lack of trust in the stability of the local currency and in domestic financial institutions. Moreover, special factors including remittances and expectations of euro adoption play an important role in selected regions. The financial crisis reduced foreign currency borrowing, but there is some indication this effect might be only temporary.

Suggested Citation

  • Fidrmuc, Jarko & Hake, Mariya & Stix, Helmut, 2013. "Households’ foreign currency borrowing in Central and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1880-1897.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:6:p:1880-1897
    DOI: 10.1016/j.jbankfin.2012.06.018
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426612001793
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2012.06.018?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Enders, Zeno & Jung, Philip & Müller, Gernot J., 2013. "Has the Euro changed the business cycle?," European Economic Review, Elsevier, vol. 59(C), pages 189-211.
    2. Elisabeth Beckmann & Sandra Dvorsky & Thomas Scheiber, 2011. "OeNB Euro Survey: Growing Uncertainty, but Overall Euroization Not Affected," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 88-99.
    3. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2013. "Bank Bailouts, International Linkages, and Cooperation," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 270-305, November.
    4. Martin Brown & Steven Ongena & Alexander Popov & Pinar Yeşin, 2011. "Who needs credit and who gets credit in Eastern Europe? [Interaction terms in logit and probit models]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 26(65), pages 93-130.
    5. Lothian, James R. & Wu, Liuren, 2011. "Uncovered interest-rate parity over the past two centuries," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 448-473, April.
    6. Romain Rancière & Aaron Tornell & Athanasio Vamvakidis, 2010. "Currency Mismatch and Systemic Risk in Emerging Europe," PSE - G-MOND WORKING PAPERS halshs-00967419, HAL.
    7. Jesús Crespo Cuaresma & Jarko Fidrmuc & Mariya Hake, 2011. "Determinants of Foreign Currency Loans in CESEE Countries: A Meta-Analysis," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 69-87.
    8. Gábor Pellényi & Péter Bilek, 2009. "Foreign Currency Borrowing: The Case of Hungary," Working Paper / FINESS 5.4, DIW Berlin, German Institute for Economic Research.
    9. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," Discussion Papers of DIW Berlin 511, DIW Berlin, German Institute for Economic Research.
    10. Kevin Cowan & Erwin Hansen & Luis Oscar Herrera, 2005. "Currency Mismatches, Balance-Sheet Effects and Hedging in Chilean Non-Financial Corporations," Research Department Publications 4387, Inter-American Development Bank, Research Department.
    11. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
    12. Christoph Rosenberg & Marcel Tirpák, 2009. "Determinants of Foreign Currency Borrowing in the New Member States of the EU," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(3), pages 216-228, August.
    13. Marcus Miller & Paul Weller & Lei Zhang, 2002. "Moral Hazard and the US Stock Market: Analysing the "Greenspan Put"," Economic Journal, Royal Economic Society, vol. 112(478), pages 171-186, March.
    14. Helmut Stix, 2013. "Does the Broad Public Want to Consolidate Public Debt? – The Role of Fairness and of Policy Credibility," Kyklos, Wiley Blackwell, vol. 66(1), pages 102-129, February.
    15. Martin Brown & Steven Ongena & Pinar Yeşin, 2014. "Information Asymmetry and Foreign Currency Borrowing by Small Firms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(1), pages 110-131, March.
    16. Berlinski, Samuel & Busso, Matias, 2017. "Challenges in educational reform: An experiment on active learning in mathematics," Economics Letters, Elsevier, vol. 156(C), pages 172-175.
    17. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2011. "Financial dollarization: The role of foreign-owned banks and interest rates," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 794-806, April.
    18. Kyriakos C. Neanidis, 2010. "Financial Dollarization and European Union Membership," International Finance, Wiley Blackwell, vol. 13(2), pages 257-282, August.
    19. Simi Kedia & Abon Mozumdar, 2003. "Foreign Currency Denominated Debt: An Empirical Examination," The Journal of Business, University of Chicago Press, vol. 76(4), pages 521-546, October.
    20. Eduardo Levy Yeyati, 2006. "Financial dollarization: evaluating the consequences [‘A simple model of monetary policy and currency crises’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(45), pages 62-118.
    21. Jeanne, Olivier, 2000. "Foreign currency debt and the global financial architecture," European Economic Review, Elsevier, vol. 44(4-6), pages 719-727, May.
    22. Galiani, Sebastian & Levy Yeyati, Eduardo & Schargrodsky, Ernesto, 2003. "Financial dollarization and debt deflation under a currency board," Emerging Markets Review, Elsevier, vol. 4(4), pages 340-367, December.
    23. Martin Brown & Ralph De Haas, 2012. "Foreign banks and foreign currency lending in emerging Europe [Capital structure and financial risk: evidence from foreign debt use in East Asia]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(69), pages 57-98.
    24. Brown, M. & Kirschenmann, K. & Ongena, S., 2009. "Foreign Currency Loans - Demand or Supply Driven?," Discussion Paper 2009-78, Tilburg University, Center for Economic Research.
    25. Romain Ranciere & Aaron Tornell & Athanasios Vamvakidis, 2010. "Currency mismatch, systemic risk and growth in emerging Europe [Capital structure and financial risk: evidence from foreign debt use in East Asia]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 25(64), pages 597-658.
    26. Beer, Christian & Ongena, Steven & Peter, Marcel, 2010. "Borrowing in foreign currency: Austrian households as carry traders," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2198-2211, September.
    27. Steffen Osterloh, 2011. "Can Regional Transfers Buy Public Support? Evidence from EU Structural Policy," Working Papers 169, Oesterreichische Nationalbank (Austrian Central Bank).
    28. Romain Rancière & Aaron Tornall & Athanasio Vamvakidis, 2010. "Currency mismatch, systemic risk and growth in emerging Europe," PSE-Ecole d'économie de Paris (Postprint) halshs-00754418, HAL.
    29. Hainz, Christa & Nabokin, Tatjana, 2009. "Access to versus Use of Loans: What are the True Determinants of Access?," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 12, Verein für Socialpolitik, Research Committee Development Economics.
    30. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    31. Neanidis, Kyriakos C. & Savva, Christos S., 2009. "Financial dollarization: Short-run determinants in transition economies," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1860-1873, October.
    32. Calvo-Gonzalez, Oscar & Basso, Henrique S. & Jurgilas, Marius, 2007. "Financial dollarization: the role of banks and interest rates," Working Paper Series 748, European Central Bank.
    33. Luca, Alina & Petrova, Iva, 2008. "What drives credit dollarization in transition economies?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 858-869, May.
    34. Mr. Adolfo Barajas & Mr. Armando Méndez Morales, 2003. "Dollarization of Liabilities: Beyond the Usual Suspects," IMF Working Papers 2003/011, International Monetary Fund.
    35. Červená, Marianna & Schneider, Martin, 2014. "Short-term forecasting of GDP with a DSGE model augmented by monthly indicators," International Journal of Forecasting, Elsevier, vol. 30(3), pages 498-516.
    36. Chinn, Menzie D., 2006. "The (partial) rehabilitation of interest rate parity in the floating rate era: Longer horizons, alternative expectations, and emerging markets," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 7-21, February.
    37. repec:diw:diwfin:diwfin05040 is not listed on IDEAS
    38. M. Emranul Haque & Kyriakos C. Neanidis, 2009. "Financial Dollarization: Short-Run Determinants in Transition Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 114, Economics, The University of Manchester.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:onb:oenbwp:y::i:171:b:1 is not listed on IDEAS
    2. Beckmann, Elisabeth & Stix, Helmut, 2015. "Foreign currency borrowing and knowledge about exchange rate risk," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 1-16.
    3. Marcelin, Isaac & Mathur, Ike, 2016. "Financial sector development and dollarization in emerging economies," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 20-32.
    4. Elisabeth Beckmann, 2017. "How does foreign currency debt relief affect households’ loan demand? Evidence from the OeNB Euro Survey in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 8-32.
    5. Kátay, Gábor & Péter, Harasztosi, 2017. "Currency Matching and Carry Trade by Non-Financial Corporations," Working Papers 2017-02, Joint Research Centre, European Commission.
    6. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2022. "Foreign currency loans and credit risk: Evidence from U.S. banks," Journal of International Economics, Elsevier, vol. 135(C).
    7. Jesús Crespo Cuaresma & Jarko Fidrmuc & Mariya Hake, 2011. "Determinants of Foreign Currency Loans in CESEE Countries: A Meta-Analysis," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 69-87.
    8. Mariya Hake & Fernando Lopez-Vicente & Luis Molina, 2014. "Do the Drivers of Loan Dollarization Differ between CESEE and Latin America? A Meta-Analysis," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 8-35.
    9. Crespo Cuaresma, Jesús & Fidrmuc, Jarko & Hake, Mariya, 2014. "Demand and supply drivers of foreign currency loans in CEECs: A meta-analysis," Economic Systems, Elsevier, vol. 38(1), pages 26-42.
    10. Aiba, Daiju & Odajima, Ken & Khou, Vouthy, 2018. "Foreign currency borrowing and risk-hedging behavior: Evidence from Cambodian households," Journal of Asian Economics, Elsevier, vol. 58(C), pages 19-35.
    11. Martin Brown & Steven Ongena & Pinar Yeşin, 2014. "Information Asymmetry and Foreign Currency Borrowing by Small Firms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(1), pages 110-131, March.
    12. Sung C. Bae & Hyeon Sook Kim & Taek Ho Kwon, 2020. "Foreign currency borrowing surrounding the global financial crisis: Evidence from Korea," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(5-6), pages 786-817, May.
    13. Kyriakos C. Neanidis, 2010. "Financial Dollarization and European Union Membership," International Finance, Wiley Blackwell, vol. 13(2), pages 257-282, August.
    14. Judit Temesvary, 2016. "The drivers of foreign currency-based banking in Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 24(2), pages 233-257, April.
    15. Elisabeth Beckmann & Anita Roitner & Helmut Stix, 2015. "A Local or a Foreign Currency Loan? Evidence on the Role of Loan Characteristics, Preferences of Households and the Effect of Foreign Banks," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 24-48.
    16. Marina Tkalec, 2013. "The Dynamics of Deposit Euroization in European Post-Transition Countries: Evidence from Threshold VAR," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 66-83.
    17. Kyriakos C. Neanidis & Christos S. Savva, 2015. "Is Loan Dollarization Contagious across Countries? Evidence from Transition Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 200, Economics, The University of Manchester.
    18. Martin Brown & Karolin Kirschenmann & Steven Ongena, 2014. "Bank Funding, Securitization, and Loan Terms: Evidence from Foreign Currency Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(7), pages 1501-1534, October.
    19. Kyriakos C. Neanidis & Christos S. Savva, 2020. "Cross-Border Spillovers in Foreign Currency Credit," Economics Discussion Paper Series 2002, Economics, The University of Manchester.
    20. Harasztosi, Péter & Kátay, Gábor, 2020. "Currency matching by non-financial corporations," Journal of Banking & Finance, Elsevier, vol. 113(C).
    21. Elisabeth Beckmann & Sandra Dvorsky & Thomas Scheiber, 2011. "OeNB Euro Survey: Growing Uncertainty, but Overall Euroization Not Affected," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 88-99.

    More about this item

    Keywords

    Foreign currency loans; Loan plans; Dollarization; Euroization; Monetary credibility; Trust; CEECs;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:6:p:1880-1897. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.