Is economic uncertainty a risk factor in bank loan pricing decisions? : international evidence

Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dat...
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Autor*in:	Ashraf, Badar Nadeem [verfasserIn]

Format:	E-Artikel
Sprache:	Englisch

Erschienen:	2021

Rechteinformationen:	Open Access Namensnennung 4.0 International ; CC BY 4.0

Schlagwörter:	bank loan interest rates economic policy uncertainty economic uncertainty political uncertainty world uncertainty index

Übergeordnetes Werk:	Enthalten in: Risks - Basel : MDPI, 2013, 9(2021), 5 vom: Mai, Artikel-ID 81, Seite 1-17
Übergeordnetes Werk:	volume:9 ; year:2021 ; number:5 ; month:05 ; elocationid:81 ; pages:1-17

Links:	Link aufrufen Link aufrufen Link aufrufen

DOI / URN:	10.3390/risks9050081

Katalog-ID:	1757236961

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allfields	10.3390/risks9050081 doi 10419/258169 hdl (DE-627)1757236961 (DE-599)KXP1757236961 DE-627 ger DE-627 rda eng Ashraf, Badar Nadeem verfasserin (DE-588)1080537198 (DE-627)844782491 (DE-576)453604889 aut Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence Badar Nadeem Ashraf 2021 Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier DE-206 Open Access Controlled Vocabulary for Access Rights http://purl.org/coar/access_right/c_abf2 Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998-2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans. DE-206 Namensnennung 4.0 International CC BY 4.0 cc https://creativecommons.org/licenses/by/4.0/ bank loan interest rates (dpeaa)DE-206 economic policy uncertainty (dpeaa)DE-206 economic uncertainty (dpeaa)DE-206 political uncertainty (dpeaa)DE-206 world uncertainty index (dpeaa)DE-206 Enthalten in Risks Basel : MDPI, 2013 9(2021), 5 vom: Mai, Artikel-ID 81, Seite 1-17 Online-Ressource (DE-627)737288485 (DE-600)2704357-5 (DE-576)379467852 2227-9091 nnns volume:9 year:2021 number:5 month:05 elocationid:81 pages:1-17 https://www.mdpi.com/2227-9091/9/5/81/pdf Verlag kostenfrei https://doi.org/10.3390/risks9050081 Resolving-System kostenfrei http://hdl.handle.net/10419/258169 Resolving-System kostenfrei GBV_USEFLAG_U GBV_ILN_26 ISIL_DE-206 SYSFLAG_1 GBV_KXP GBV_ILN_11 GBV_ILN_20 GBV_ILN_22 GBV_ILN_23 GBV_ILN_24 GBV_ILN_39 GBV_ILN_40 GBV_ILN_60 GBV_ILN_62 GBV_ILN_63 GBV_ILN_65 GBV_ILN_69 GBV_ILN_70 GBV_ILN_73 GBV_ILN_95 GBV_ILN_105 GBV_ILN_110 GBV_ILN_151 GBV_ILN_152 GBV_ILN_161 GBV_ILN_206 GBV_ILN_213 GBV_ILN_230 GBV_ILN_285 GBV_ILN_293 GBV_ILN_370 GBV_ILN_602 GBV_ILN_2009 GBV_ILN_2014 GBV_ILN_2034 GBV_ILN_2055 GBV_ILN_2108 GBV_ILN_2111 GBV_ILN_2129 GBV_ILN_4012 GBV_ILN_4037 GBV_ILN_4046 GBV_ILN_4112 GBV_ILN_4125 GBV_ILN_4126 GBV_ILN_4249 GBV_ILN_4305 GBV_ILN_4306 GBV_ILN_4307 GBV_ILN_4313 GBV_ILN_4322 GBV_ILN_4323 GBV_ILN_4324 GBV_ILN_4325 GBV_ILN_4326 GBV_ILN_4335 GBV_ILN_4338 GBV_ILN_4367 GBV_ILN_4700 GBV_ILN_2403 GBV_ILN_2403 ISIL_DE-LFER AR 9 2021 5 5 81 1-17 26 01 0206 3924111049 x1z 06-05-21 2403 01 DE-LFER 3935749848 00 --%%-- --%%-- n --%%-- l01 08-06-21 2403 01 DE-LFER https://doi.org/10.3390/risks9050081 2403 01 DE-LFER https://www.mdpi.com/2227-9091/9/5/81/pdf
spelling	10.3390/risks9050081 doi 10419/258169 hdl (DE-627)1757236961 (DE-599)KXP1757236961 DE-627 ger DE-627 rda eng Ashraf, Badar Nadeem verfasserin (DE-588)1080537198 (DE-627)844782491 (DE-576)453604889 aut Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence Badar Nadeem Ashraf 2021 Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier DE-206 Open Access Controlled Vocabulary for Access Rights http://purl.org/coar/access_right/c_abf2 Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998-2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans. DE-206 Namensnennung 4.0 International CC BY 4.0 cc https://creativecommons.org/licenses/by/4.0/ bank loan interest rates (dpeaa)DE-206 economic policy uncertainty (dpeaa)DE-206 economic uncertainty (dpeaa)DE-206 political uncertainty (dpeaa)DE-206 world uncertainty index (dpeaa)DE-206 Enthalten in Risks Basel : MDPI, 2013 9(2021), 5 vom: Mai, Artikel-ID 81, Seite 1-17 Online-Ressource (DE-627)737288485 (DE-600)2704357-5 (DE-576)379467852 2227-9091 nnns volume:9 year:2021 number:5 month:05 elocationid:81 pages:1-17 https://www.mdpi.com/2227-9091/9/5/81/pdf Verlag kostenfrei https://doi.org/10.3390/risks9050081 Resolving-System kostenfrei http://hdl.handle.net/10419/258169 Resolving-System kostenfrei GBV_USEFLAG_U GBV_ILN_26 ISIL_DE-206 SYSFLAG_1 GBV_KXP GBV_ILN_11 GBV_ILN_20 GBV_ILN_22 GBV_ILN_23 GBV_ILN_24 GBV_ILN_39 GBV_ILN_40 GBV_ILN_60 GBV_ILN_62 GBV_ILN_63 GBV_ILN_65 GBV_ILN_69 GBV_ILN_70 GBV_ILN_73 GBV_ILN_95 GBV_ILN_105 GBV_ILN_110 GBV_ILN_151 GBV_ILN_152 GBV_ILN_161 GBV_ILN_206 GBV_ILN_213 GBV_ILN_230 GBV_ILN_285 GBV_ILN_293 GBV_ILN_370 GBV_ILN_602 GBV_ILN_2009 GBV_ILN_2014 GBV_ILN_2034 GBV_ILN_2055 GBV_ILN_2108 GBV_ILN_2111 GBV_ILN_2129 GBV_ILN_4012 GBV_ILN_4037 GBV_ILN_4046 GBV_ILN_4112 GBV_ILN_4125 GBV_ILN_4126 GBV_ILN_4249 GBV_ILN_4305 GBV_ILN_4306 GBV_ILN_4307 GBV_ILN_4313 GBV_ILN_4322 GBV_ILN_4323 GBV_ILN_4324 GBV_ILN_4325 GBV_ILN_4326 GBV_ILN_4335 GBV_ILN_4338 GBV_ILN_4367 GBV_ILN_4700 GBV_ILN_2403 GBV_ILN_2403 ISIL_DE-LFER AR 9 2021 5 5 81 1-17 26 01 0206 3924111049 x1z 06-05-21 2403 01 DE-LFER 3935749848 00 --%%-- --%%-- n --%%-- l01 08-06-21 2403 01 DE-LFER https://doi.org/10.3390/risks9050081 2403 01 DE-LFER https://www.mdpi.com/2227-9091/9/5/81/pdf
allfields_unstemmed	10.3390/risks9050081 doi 10419/258169 hdl (DE-627)1757236961 (DE-599)KXP1757236961 DE-627 ger DE-627 rda eng Ashraf, Badar Nadeem verfasserin (DE-588)1080537198 (DE-627)844782491 (DE-576)453604889 aut Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence Badar Nadeem Ashraf 2021 Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier DE-206 Open Access Controlled Vocabulary for Access Rights http://purl.org/coar/access_right/c_abf2 Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998-2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans. DE-206 Namensnennung 4.0 International CC BY 4.0 cc https://creativecommons.org/licenses/by/4.0/ bank loan interest rates (dpeaa)DE-206 economic policy uncertainty (dpeaa)DE-206 economic uncertainty (dpeaa)DE-206 political uncertainty (dpeaa)DE-206 world uncertainty index (dpeaa)DE-206 Enthalten in Risks Basel : MDPI, 2013 9(2021), 5 vom: Mai, Artikel-ID 81, Seite 1-17 Online-Ressource (DE-627)737288485 (DE-600)2704357-5 (DE-576)379467852 2227-9091 nnns volume:9 year:2021 number:5 month:05 elocationid:81 pages:1-17 https://www.mdpi.com/2227-9091/9/5/81/pdf Verlag kostenfrei https://doi.org/10.3390/risks9050081 Resolving-System kostenfrei http://hdl.handle.net/10419/258169 Resolving-System kostenfrei GBV_USEFLAG_U GBV_ILN_26 ISIL_DE-206 SYSFLAG_1 GBV_KXP GBV_ILN_11 GBV_ILN_20 GBV_ILN_22 GBV_ILN_23 GBV_ILN_24 GBV_ILN_39 GBV_ILN_40 GBV_ILN_60 GBV_ILN_62 GBV_ILN_63 GBV_ILN_65 GBV_ILN_69 GBV_ILN_70 GBV_ILN_73 GBV_ILN_95 GBV_ILN_105 GBV_ILN_110 GBV_ILN_151 GBV_ILN_152 GBV_ILN_161 GBV_ILN_206 GBV_ILN_213 GBV_ILN_230 GBV_ILN_285 GBV_ILN_293 GBV_ILN_370 GBV_ILN_602 GBV_ILN_2009 GBV_ILN_2014 GBV_ILN_2034 GBV_ILN_2055 GBV_ILN_2108 GBV_ILN_2111 GBV_ILN_2129 GBV_ILN_4012 GBV_ILN_4037 GBV_ILN_4046 GBV_ILN_4112 GBV_ILN_4125 GBV_ILN_4126 GBV_ILN_4249 GBV_ILN_4305 GBV_ILN_4306 GBV_ILN_4307 GBV_ILN_4313 GBV_ILN_4322 GBV_ILN_4323 GBV_ILN_4324 GBV_ILN_4325 GBV_ILN_4326 GBV_ILN_4335 GBV_ILN_4338 GBV_ILN_4367 GBV_ILN_4700 GBV_ILN_2403 GBV_ILN_2403 ISIL_DE-LFER AR 9 2021 5 5 81 1-17 26 01 0206 3924111049 x1z 06-05-21 2403 01 DE-LFER 3935749848 00 --%%-- --%%-- n --%%-- l01 08-06-21 2403 01 DE-LFER https://doi.org/10.3390/risks9050081 2403 01 DE-LFER https://www.mdpi.com/2227-9091/9/5/81/pdf
allfieldsGer	10.3390/risks9050081 doi 10419/258169 hdl (DE-627)1757236961 (DE-599)KXP1757236961 DE-627 ger DE-627 rda eng Ashraf, Badar Nadeem verfasserin (DE-588)1080537198 (DE-627)844782491 (DE-576)453604889 aut Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence Badar Nadeem Ashraf 2021 Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier DE-206 Open Access Controlled Vocabulary for Access Rights http://purl.org/coar/access_right/c_abf2 Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998-2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans. DE-206 Namensnennung 4.0 International CC BY 4.0 cc https://creativecommons.org/licenses/by/4.0/ bank loan interest rates (dpeaa)DE-206 economic policy uncertainty (dpeaa)DE-206 economic uncertainty (dpeaa)DE-206 political uncertainty (dpeaa)DE-206 world uncertainty index (dpeaa)DE-206 Enthalten in Risks Basel : MDPI, 2013 9(2021), 5 vom: Mai, Artikel-ID 81, Seite 1-17 Online-Ressource (DE-627)737288485 (DE-600)2704357-5 (DE-576)379467852 2227-9091 nnns volume:9 year:2021 number:5 month:05 elocationid:81 pages:1-17 https://www.mdpi.com/2227-9091/9/5/81/pdf Verlag kostenfrei https://doi.org/10.3390/risks9050081 Resolving-System kostenfrei http://hdl.handle.net/10419/258169 Resolving-System kostenfrei GBV_USEFLAG_U GBV_ILN_26 ISIL_DE-206 SYSFLAG_1 GBV_KXP GBV_ILN_11 GBV_ILN_20 GBV_ILN_22 GBV_ILN_23 GBV_ILN_24 GBV_ILN_39 GBV_ILN_40 GBV_ILN_60 GBV_ILN_62 GBV_ILN_63 GBV_ILN_65 GBV_ILN_69 GBV_ILN_70 GBV_ILN_73 GBV_ILN_95 GBV_ILN_105 GBV_ILN_110 GBV_ILN_151 GBV_ILN_152 GBV_ILN_161 GBV_ILN_206 GBV_ILN_213 GBV_ILN_230 GBV_ILN_285 GBV_ILN_293 GBV_ILN_370 GBV_ILN_602 GBV_ILN_2009 GBV_ILN_2014 GBV_ILN_2034 GBV_ILN_2055 GBV_ILN_2108 GBV_ILN_2111 GBV_ILN_2129 GBV_ILN_4012 GBV_ILN_4037 GBV_ILN_4046 GBV_ILN_4112 GBV_ILN_4125 GBV_ILN_4126 GBV_ILN_4249 GBV_ILN_4305 GBV_ILN_4306 GBV_ILN_4307 GBV_ILN_4313 GBV_ILN_4322 GBV_ILN_4323 GBV_ILN_4324 GBV_ILN_4325 GBV_ILN_4326 GBV_ILN_4335 GBV_ILN_4338 GBV_ILN_4367 GBV_ILN_4700 GBV_ILN_2403 GBV_ILN_2403 ISIL_DE-LFER AR 9 2021 5 5 81 1-17 26 01 0206 3924111049 x1z 06-05-21 2403 01 DE-LFER 3935749848 00 --%%-- --%%-- n --%%-- l01 08-06-21 2403 01 DE-LFER https://doi.org/10.3390/risks9050081 2403 01 DE-LFER https://www.mdpi.com/2227-9091/9/5/81/pdf
allfieldsSound	10.3390/risks9050081 doi 10419/258169 hdl (DE-627)1757236961 (DE-599)KXP1757236961 DE-627 ger DE-627 rda eng Ashraf, Badar Nadeem verfasserin (DE-588)1080537198 (DE-627)844782491 (DE-576)453604889 aut Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence Badar Nadeem Ashraf 2021 Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier DE-206 Open Access Controlled Vocabulary for Access Rights http://purl.org/coar/access_right/c_abf2 Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998-2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans. DE-206 Namensnennung 4.0 International CC BY 4.0 cc https://creativecommons.org/licenses/by/4.0/ bank loan interest rates (dpeaa)DE-206 economic policy uncertainty (dpeaa)DE-206 economic uncertainty (dpeaa)DE-206 political uncertainty (dpeaa)DE-206 world uncertainty index (dpeaa)DE-206 Enthalten in Risks Basel : MDPI, 2013 9(2021), 5 vom: Mai, Artikel-ID 81, Seite 1-17 Online-Ressource (DE-627)737288485 (DE-600)2704357-5 (DE-576)379467852 2227-9091 nnns volume:9 year:2021 number:5 month:05 elocationid:81 pages:1-17 https://www.mdpi.com/2227-9091/9/5/81/pdf Verlag kostenfrei https://doi.org/10.3390/risks9050081 Resolving-System kostenfrei http://hdl.handle.net/10419/258169 Resolving-System kostenfrei GBV_USEFLAG_U GBV_ILN_26 ISIL_DE-206 SYSFLAG_1 GBV_KXP GBV_ILN_11 GBV_ILN_20 GBV_ILN_22 GBV_ILN_23 GBV_ILN_24 GBV_ILN_39 GBV_ILN_40 GBV_ILN_60 GBV_ILN_62 GBV_ILN_63 GBV_ILN_65 GBV_ILN_69 GBV_ILN_70 GBV_ILN_73 GBV_ILN_95 GBV_ILN_105 GBV_ILN_110 GBV_ILN_151 GBV_ILN_152 GBV_ILN_161 GBV_ILN_206 GBV_ILN_213 GBV_ILN_230 GBV_ILN_285 GBV_ILN_293 GBV_ILN_370 GBV_ILN_602 GBV_ILN_2009 GBV_ILN_2014 GBV_ILN_2034 GBV_ILN_2055 GBV_ILN_2108 GBV_ILN_2111 GBV_ILN_2129 GBV_ILN_4012 GBV_ILN_4037 GBV_ILN_4046 GBV_ILN_4112 GBV_ILN_4125 GBV_ILN_4126 GBV_ILN_4249 GBV_ILN_4305 GBV_ILN_4306 GBV_ILN_4307 GBV_ILN_4313 GBV_ILN_4322 GBV_ILN_4323 GBV_ILN_4324 GBV_ILN_4325 GBV_ILN_4326 GBV_ILN_4335 GBV_ILN_4338 GBV_ILN_4367 GBV_ILN_4700 GBV_ILN_2403 GBV_ILN_2403 ISIL_DE-LFER AR 9 2021 5 5 81 1-17 26 01 0206 3924111049 x1z 06-05-21 2403 01 DE-LFER 3935749848 00 --%%-- --%%-- n --%%-- l01 08-06-21 2403 01 DE-LFER https://doi.org/10.3390/risks9050081 2403 01 DE-LFER https://www.mdpi.com/2227-9091/9/5/81/pdf
language	English
source	Enthalten in Risks 9(2021), 5 vom: Mai, Artikel-ID 81, Seite 1-17 volume:9 year:2021 number:5 month:05 elocationid:81 pages:1-17
sourceStr	Enthalten in Risks 9(2021), 5 vom: Mai, Artikel-ID 81, Seite 1-17 volume:9 year:2021 number:5 month:05 elocationid:81 pages:1-17
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topic_facet	bank loan interest rates economic policy uncertainty economic uncertainty political uncertainty world uncertainty index
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container_title	Risks
authorswithroles_txt_mv	Ashraf, Badar Nadeem @@aut@@
publishDateDaySort_date	2021-05-01T00:00:00Z
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author	Ashraf, Badar Nadeem
spellingShingle	Ashraf, Badar Nadeem misc bank loan interest rates misc economic policy uncertainty misc economic uncertainty misc political uncertainty misc world uncertainty index Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence
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topic_title	Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence Badar Nadeem Ashraf bank loan interest rates (dpeaa)DE-206 economic policy uncertainty (dpeaa)DE-206 economic uncertainty (dpeaa)DE-206 political uncertainty (dpeaa)DE-206 world uncertainty index (dpeaa)DE-206
topic	misc bank loan interest rates misc economic policy uncertainty misc economic uncertainty misc political uncertainty misc world uncertainty index
topic_unstemmed	misc bank loan interest rates misc economic policy uncertainty misc economic uncertainty misc political uncertainty misc world uncertainty index
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title	Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence
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title_full	Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence Badar Nadeem Ashraf
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title_sort	is economic uncertainty a risk factor in bank loan pricing decisions?international evidence
title_auth	Is economic uncertainty a risk factor in bank loan pricing decisions? international evidence
abstract	Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998-2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans.
abstractGer	Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998-2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans.
abstract_unstemmed	Uncertainty in economic environment leads economic agents to act cautiously. In this paper, we postulate that such uncertainty leads banks to charge higher interest rate on loans. Measuring aggregate country-level economic uncertainty with the World Uncertainty Index (WUI) and using a bank-level dataset from 88 countries over the period 1998-2017, we find that heightened economic uncertainty increases bank loan interest rates. Specifically, bank loan interest rates rise by 20.67 basis points with a one standard deviation increase in WUI. Our results are robust when we use alternative proxy of uncertainty, include additional controls in the model, and extend the sample size. We also observe that WUI index is better at measuring local economic uncertainty as compared to the Economic Policy Uncertainty (EPU) index. Overall, this study provides evidence that bank price in economic uncertainty is an important risk while setting interest rates on bank loans.
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title_short	Is economic uncertainty a risk factor in bank loan pricing decisions?
url	https://www.mdpi.com/2227-9091/9/5/81/pdf https://doi.org/10.3390/risks9050081 http://hdl.handle.net/10419/258169
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