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Forecasting charge-off rates with a panel Tobit model: the role of uncertainty

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  • Xin Sheng
  • Rangan Gupta
  • Qiang Ji

Abstract

Based on a large panel dataset of small commercial banks in the United States, this paper employs a dynamic panel Tobit model to analyse the role of uncertainty in forecasting charge-off rates on loans for credit card (CC) and residential real estate (RRE). When compared to other standard predictors, such as house prices and unemployment rates, we find that the effect of uncertainty changes on charge-off rates is more pronounced. Furthermore, it is evident that including heteroscedasticity in the model specification leads to more accurate forecasts.

Suggested Citation

  • Xin Sheng & Rangan Gupta & Qiang Ji, 2022. "Forecasting charge-off rates with a panel Tobit model: the role of uncertainty," Applied Economics Letters, Taylor & Francis Journals, vol. 29(10), pages 927-931, June.
  • Handle: RePEc:taf:apeclt:v:29:y:2022:i:10:p:927-931
    DOI: 10.1080/13504851.2021.1898532
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    References listed on IDEAS

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    1. Laura Liu & Hyungsik Roger Moon & Frank Schorfheide, 2023. "Forecasting with a panel Tobit model," Quantitative Economics, Econometric Society, vol. 14(1), pages 117-159, January.
    2. Kyle Jurado & Sydney C. Ludvigson & Serena Ng, 2015. "Measuring Uncertainty," American Economic Review, American Economic Association, vol. 105(3), pages 1177-1216, March.
    3. Tyler Atkinson & David Luttrell & Harvey Rosenblum, 2013. "Assessing the costs and consequences of the 2007–09 financial crisis and its aftermath," Economic Letter, Federal Reserve Bank of Dallas, vol. 8(7), September.
    4. Mumtaz, Haroon, 2018. "Does uncertainty affect real activity? Evidence from state-level data," Economics Letters, Elsevier, vol. 167(C), pages 127-130.
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    Cited by:

    1. Carlos Canizares Martinez, 2023. "Leaning against housing booms fueled by credit," Working and Discussion Papers WP 9/2023, Research Department, National Bank of Slovakia.

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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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