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A Macroeconomic Model of Credit Risk in Uruguay

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  • Illanes, Gabriel
  • Pena, Alejandro
  • Sosa Rodriguez, Andrés Ricardo

Abstract

This paper deals with credit risk in the Uruguayan aggregate economy andtherefore correspond to financial stability purposes. To analyze the risk associ-ated with a portfolio of loans a nonlinear parametric model based on Merton’sapproach is used, in which a default event occurs if the returns of the economicagent falls below a certain threshold that depends on macroeconomic variables. The estimated models can help to understand the relationship between creditrisk and macroeconomic indicators. The results obtained can be consideredfor estimating the credit risk module in the stress tests framework of the localbanking system. ”Elasticities” of impact of the relevant macroeconomic factoron credit risk are reported for corporate and households lending, both in localcurrency and dollars. The parameters are obtained by the statistical technique ofMaximum Likelihood, where the function to maximize contains a latent randomfactor that is assumed to have normal distribution.

Suggested Citation

  • Illanes, Gabriel & Pena, Alejandro & Sosa Rodriguez, Andrés Ricardo, 2016. "A Macroeconomic Model of Credit Risk in Uruguay," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 70(4), December.
    • Handle: RePEc:fgv:epgrbe:v:70:y:2016:i:4:a:56564
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    References listed on IDEAS

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    1. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409, World Scientific Publishing Co. Pte. Ltd..
    2. Rosch, Daniel, 2005. "An empirical comparison of default risk forecasts from alternative credit rating philosophies," International Journal of Forecasting, Elsevier, vol. 21(1), pages 37-51.
    3. Rösch, Daniel, 2003. "Correlations and Business Cycles of Credit Risk: Evidence from Bankruptcies in Germany," University of Regensburg Working Papers in Business, Economics and Management Information Systems 380, University of Regensburg, Department of Economics.
    4. Lucas, Andre & Klaassen, Pieter, 2006. "Discrete versus continuous state switching models for portfolio credit risk," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 23-35, January.
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    7. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank.
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