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Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies

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  • Mwanza Nkusu
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    Abstract

    We analyze the link between nonperforming loans (NPL) and macroeconomic performance using two complementary approaches. First, we investigate the macroeconomic determinants of NPL in panel regressions and confirm that adverse macroeconomic developments are associated with rising NPL. Second, we investigate the feedback between NPL and its macroeconomic determinants in a panel vector autoregressive (PVAR) model. The impulse response functions (IRFs) attribute to NPL a central role in the linkages between credit market frictions and macrofinancial vulnerability. They suggest that a sharp increase in NPL triggers long-lived tailwinds that cripple macroeconomic performance from several fronts.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/161.

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    Length: 27
    Date of creation: 01 Jul 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/161

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    Related research

    Keywords: Banks; Credit risk; Developed countries; Economic models; banking; banking crises; cointegration; statistics; equation; standard deviation; banks ? balance sheets; standard errors; var model; correlations; logarithm; samples; standard error; econometrics; banks ? loan; bank credit; banking system distress; time series; probability; financial statistics; banking sector; equations; correlation; banking systems; bank policy; vector autoregression; bank of greece; autocorrelation; banking system; covariance; mortgage loan; dummy variable; significance level; statistic; forecasting; predictions; sample size; bank portfolio; bank insolvencies; diagonal matrix; bankruptcies; prediction; banking crisis; bank capital; finite sample; linear trend; stationary process; bank for international settlements; polynomial; significance levels;

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    Cited by:
    1. Love, Inessa & Turk Ariss, Rima, 2014. "Macro-financial linkages in Egypt: A panel analysis of economic shocks and loan portfolio quality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 158-181.
    2. Reinout De Bock & Alexander Demyanets, 2012. "Bank Asset Quality in Emerging Markets," IMF Working Papers 12/71, International Monetary Fund.
    3. Vítor Castro, 2013. "Macroeconomic Determinants of the Credit Risk in the Banking System: The Case of the GIPSI," GEMF Working Papers 2013-12, GEMF - Faculdade de Economia, Universidade de Coimbra.
    4. Pan, Huiran & Wang, Chun, 2013. "House prices, bank instability, and economic growth: Evidence from the threshold model," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1720-1732.
    5. Bruna Škarica, 2013. "Determinants of Non-Performing Loans in Central and Eastern European Countries," EFZG Working Papers Series 1307, Faculty of Economics and Business, University of Zagreb.
    6. Eftychia Nikolaidou & Sofoklis Vogiazas, 2014. "Credit Risk Determinants for the Bulgarian Banking System," International Advances in Economic Research, Springer, vol. 20(1), pages 87-102, February.
    7. Josef Schreiner, 2011. "Developments in Selected CESEE Countries: Deteriorating External Demand and Rising Risk Aversion Increasingly Weigh on Growth in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 8-43.
    8. Louzis, Dimitrios P. & Vouldis, Angelos T. & Metaxas, Vasilios L., 2012. "Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1012-1027.
    9. Rodrigo Lara Pinto & Gilneu Francisco Astolfi Vivan, 2013. "Converting the NPL Ratio into a Comparable Long Term Metric," Working Papers Series 309, Central Bank of Brazil, Research Department.
    10. Vasiliki Makri & Athanasios Tsagkanos & Athanasios Bellas, 2014. "Determinants of Non-Performing Loans: The Case of Eurozone," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(2), pages 193-206, March.

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