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Do political factors influence banking crisis?
journal contribution
posted on 2019-01-01, 00:00 authored by Rashad Hasanov, Prasad BhattacharyaPrasad BhattacharyaThis paper investigates the impending political determinants of banking crisis in advanced economies. In
particular, we consider the impact of domestic credit growth on the likelihood of banking crisis and analyse
possible constraints on the part of the governments in curbing the unsustainable credit growth. The endogeneity
corrected results reveal that the household credit growth has greater impact on the likelihood of banking crisis
than the enterprise credit growth. The political channel shows that if governments are concerned about domestic
approval rates, then there is a higher chance of credit boom, which in turn increases the prospect of banking crisis.
Interestingly, the findings reveal that the presence of an independent and well-functioning central bank mitigates
the crisis probability and reduces the opportunistic behaviour of governments.
particular, we consider the impact of domestic credit growth on the likelihood of banking crisis and analyse
possible constraints on the part of the governments in curbing the unsustainable credit growth. The endogeneity
corrected results reveal that the household credit growth has greater impact on the likelihood of banking crisis
than the enterprise credit growth. The political channel shows that if governments are concerned about domestic
approval rates, then there is a higher chance of credit boom, which in turn increases the prospect of banking crisis.
Interestingly, the findings reveal that the presence of an independent and well-functioning central bank mitigates
the crisis probability and reduces the opportunistic behaviour of governments.
History
Journal
Economic modellingVolume
76Pagination
305 - 318Publisher
ElsevierLocation
Amsterdam, The NetherlandsPublisher DOI
ISSN
0264-9993Language
EnglishPublication classification
C Journal article; C1 Refereed article in a scholarly journalCopyright notice
2018, ElsevierUsage metrics
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