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Capital flows and non-performing loans: An empirical study of the European debt crisis

Borén, Erling LU (2016) NEKN01 20161
Department of Economics
Abstract (Swedish)
This study investigates the relationship between capital imports and non-performing loans (NPLs) in the context of the European debt crisis. The empirical analysis is based on a panel data set covering 22 countries in the European Union (EU) between year 2001 and 2014. All individual estimations in the empirical analysis indicate a significant and negative relationship between capital imports and NPLs. The results are robust in the sense that two different estimation techniques were used: the First-difference Arellano-Bond generalized method of moments (GMM) estimators and Ordinary least squares (OLS). The results support other studies, which emphasize the large inflow of debt-type capital in the pre-crisis period from core EU-countries,... (More)
This study investigates the relationship between capital imports and non-performing loans (NPLs) in the context of the European debt crisis. The empirical analysis is based on a panel data set covering 22 countries in the European Union (EU) between year 2001 and 2014. All individual estimations in the empirical analysis indicate a significant and negative relationship between capital imports and NPLs. The results are robust in the sense that two different estimation techniques were used: the First-difference Arellano-Bond generalized method of moments (GMM) estimators and Ordinary least squares (OLS). The results support other studies, which emphasize the large inflow of debt-type capital in the pre-crisis period from core EU-countries, such as Germany, the Netherlands and the UK, to periphery countries, such as Greece, Ireland and Spain. This dependency on foreign interbank lending turned into severe national liquidity crises – and increased ratios of NPLs – when European banks in in the beginning of the crisis started to squeeze capital inflows to financial institutions in the periphery economies. (Less)
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author
Borén, Erling LU
supervisor
organization
course
NEKN01 20161
year
type
H1 - Master's Degree (One Year)
subject
keywords
Capital imports, debt flows, non-performing loans, the EU, GMM.
language
English
id
8891064
date added to LUP
2016-09-09 14:05:12
date last changed
2016-09-09 14:05:12
@misc{8891064,
  abstract     = {This study investigates the relationship between capital imports and non-performing loans (NPLs) in the context of the European debt crisis. The empirical analysis is based on a panel data set covering 22 countries in the European Union (EU) between year 2001 and 2014. All individual estimations in the empirical analysis indicate a significant and negative relationship between capital imports and NPLs. The results are robust in the sense that two different estimation techniques were used: the First-difference Arellano-Bond generalized method of moments (GMM) estimators and Ordinary least squares (OLS). The results support other studies, which emphasize the large inflow of debt-type capital in the pre-crisis period from core EU-countries, such as Germany, the Netherlands and the UK, to periphery countries, such as Greece, Ireland and Spain. This dependency on foreign interbank lending turned into severe national liquidity crises – and increased ratios of NPLs – when European banks in in the beginning of the crisis started to squeeze capital inflows to financial institutions in the periphery economies.},
  author       = {Borén, Erling},
  keyword      = {Capital imports,debt flows,non-performing loans,the EU,GMM.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Capital flows and non-performing loans: An empirical study of the European debt crisis},
  year         = {2016},
}