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Is Bank Portfolio Riskiness Procyclical? Evidence from Italy using a Vector Autoregression

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Author Info
Juri Marcucci
Mario Quagliariello

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Abstract

This study analyzes the cyclical behaviour of the default rates of Italian bank borrowers over the last two decades. A vector autoregression (VAR) modelling technique is employed to assess the extent to which macroeconomic shocks affect the banking sector (first round effect). The VAR also helps to disentangle the feedback effects from the financial system to the real side of the economy. We find evidence of the first round effect and some support for the feedback effect which operates via the bank capital channel.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 05/09.

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Handle: RePEc:yor:yorken:05/09

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Related research
Keywords: First-round effect; procyclicality; feedback effects; VAR; banks; default rate;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gutierrez Girault, Matias Alfredo, 2008. "Modeling extreme but plausible losses for credit risk: a stress testing framework for the Argentine Financial System," MPRA Paper 16378, University Library of Munich, Germany. [Downloadable!]
  2. Renato Filosa, 2007. "Stress testing of the stability of the Italian banking system: a VAR approach," Heterogeneity and monetary policy 0703, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
  3. Antonella Foglia, 2009. "Stress Testing Credit Risk: A Survey of Authorities' Aproaches," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 9-45, September. [Downloadable!]
  4. Simona Castellani & Chiara Pederzoli & Costanza Torricelli, 2008. "Indebtedness, macroeconomic conditions and banks’ loan losses: evidence from Italy," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08014, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi". [Downloadable!]
  5. Juri Marcucci & Mario Quagliariello, 2008. "Credit risk and business cycle over different regimes," Temi di discussione (Economic working papers) 670, Bank of Italy, Economic Research Department. [Downloadable!]
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This page was last updated on 2009-12-1.

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