Does economic uncertainty affect domestic credits? an empirical investigation

Abstract

Using the new measure of uncertainty (i.e., the World Uncertainty Index), this paper analyzes the effects of uncertainty on the level of domestic credits in a panel of 139 countries for the period from 1996 to 2017. The findings of the fixed-effects and the system Generalized Method of Moments (GMM) estimations show that a higher level of uncertainty decreases the level of domestic credits. Per capita income and money supply are positively related to the domestic credits, but the current account balance is negatively associated with domestic credit measures. After implementing various sensitivity analyses, i.e., to exclude the outliers and the countries in the different regions as well as to include various controls, the primary evidence remains robust.