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Estimation of Conditional Time-Homogeneous Credit Quality Transition Matrices for Commercial Banks in Colombia

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  • José Eduardo Gómez González
  • Inés Paola Orozco Hinojosa

Abstract

This paper presents an estimation of credit quality transition matrices for commercial banks in Colombia, using a duration hazard function model, and following the methodology proposed by Gómez-González et al (2009). Using a test developed by Weißbach et al (2005), we test for the time-homogeneity of transition matrices estimated this way, after conditioning on firm-specific and macroeconomic variables. We found that 70% of the time we could not reject the null hypothesis of time homogeneity. We also found that obtaining matrices for different subsamples was not necessary, given the similarities of the survival function.

Suggested Citation

  • José Eduardo Gómez González & Inés Paola Orozco Hinojosa, 2009. "Estimation of Conditional Time-Homogeneous Credit Quality Transition Matrices for Commercial Banks in Colombia," Borradores de Economia 560, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:560
    DOI: 10.32468/be.560
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    Keywords

    Credit risk; transition probabilities; hazard functions.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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