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Does risk aversion affect bank output loss? The case of the Eurozone


Tsionas, Mike G; Mamatzakis, Emmanuel; Ongena, Steven (2020). Does risk aversion affect bank output loss? The case of the Eurozone. European Journal of Operational Research, 282(3):1127-1145.

Abstract

We propose a new model to infer the evolution of bank-specific output losses due to the uncertainty in bank output prices. Losses are based on bank risk aversion with micro foundations tethered to the uncertainty regarding prices. Our model allows us to measure time-varying bank-specific output losses and risk aversion while taking into account all bank cross-sectional heterogeneity. We employ a panel data set to estimate the input and output elasticities with both parametric and non-parametric techniques. We are the first to document that increasing risk aversion among Eurozone banks during the financial crisis resulted in sizable output losses. Although subdued thereafter, losses have been resurging in recent years. Both conventional and unconventional monetary policy responses by the European Central Bank (ECB) mitigated uncertainty in bank output prices, though unequally so across countries. Certain measures of unconventional monetary policy may have even enhanced bank risk aversion and thereby output losses, but mainly so for large countries.

Abstract

We propose a new model to infer the evolution of bank-specific output losses due to the uncertainty in bank output prices. Losses are based on bank risk aversion with micro foundations tethered to the uncertainty regarding prices. Our model allows us to measure time-varying bank-specific output losses and risk aversion while taking into account all bank cross-sectional heterogeneity. We employ a panel data set to estimate the input and output elasticities with both parametric and non-parametric techniques. We are the first to document that increasing risk aversion among Eurozone banks during the financial crisis resulted in sizable output losses. Although subdued thereafter, losses have been resurging in recent years. Both conventional and unconventional monetary policy responses by the European Central Bank (ECB) mitigated uncertainty in bank output prices, though unequally so across countries. Certain measures of unconventional monetary policy may have even enhanced bank risk aversion and thereby output losses, but mainly so for large countries.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Physical Sciences > General Computer Science
Physical Sciences > Modeling and Simulation
Social Sciences & Humanities > Management Science and Operations Research
Social Sciences & Humanities > Information Systems and Management
Language:English
Date:1 May 2020
Deposited On:13 May 2020 06:41
Last Modified:29 Jul 2020 15:10
Publisher:Elsevier
ISSN:0377-2217
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.ejor.2019.10.008
Related URLs:https://www.sciencedirect.com/science/article/pii/S0377221719308409 (Publisher)
Other Identification Number:merlin-id:18633

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