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Loan loss provisioning, bank credit and the real economy

Author

Listed:
  • Sebastiaan Pool
  • Leo de Haan
  • Jan Jacobs

Abstract

This paper examines how credit risk affects bank lending and the business cycle. We estimate a panel Vector Autoregression model for an unbalanced sample of 12 OECD countries over the past two to three decades, consisting of the output gap, inflation, the short-term interest rate, bank lending, as well as loan loss provisioning by banks (as proxy for credit risk). Our main findings are that: (i) bank lending and loan loss provisioning are important drivers of business cycle fluctuations, (ii) loan loss provisioning decreases in relative terms as bank lending increases, and (iii) bank lending is primarily affected by output fluctuations.

Suggested Citation

  • Sebastiaan Pool & Leo de Haan & Jan Jacobs, 2014. "Loan loss provisioning, bank credit and the real economy," DNB Working Papers 445, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:445
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Agénor, Pierre-Richard & Pereira da Silva, Luiz, 2017. "Cyclically adjusted provisions and financial stability," Journal of Financial Stability, Elsevier, vol. 28(C), pages 143-162.
    2. repec:wsi:afexxx:v:12:y:2017:i:03:n:s2010495217500130 is not listed on IDEAS
    3. Ozili, Peterson K, 2017. "Bank Loan Loss Provisions, Investor Protection and the Macroeconomy," MPRA Paper 80147, University Library of Munich, Germany.
    4. de Haan, Leo & van Oordt, Maarten R.C., 2018. "Timing of banks’ loan loss provisioning during the crisis," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 293-303.
    5. Ozili, Peterson K, 2018. "Bank Loan Loss Provisions, Investor Protection and the Macroeconomy," MPRA Paper 80281, University Library of Munich, Germany.
    6. repec:kap:openec:v:29:y:2018:i:2:d:10.1007_s11079-018-9480-5 is not listed on IDEAS
    7. repec:eee:jmacro:v:54:y:2017:i:pb:p:161-186 is not listed on IDEAS
    8. Hristov, Nikolay & Hülsewig, Oliver, 2017. "Unexpected loan losses and bank capital in an estimated DSGE model of the euro area," Journal of Macroeconomics, Elsevier, vol. 54(PB), pages 161-186.
    9. Samuel GUÉRINEAU & Florian LÉON, 2016. "Information sharing, credit booms, and financial stability," Working Papers P159, FERDI.
    10. Sebastiaan Pool, 2016. "Credit Defaults, Bank Lending and the Real Economy," DNB Working Papers 518, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    loan loss provisioning; bank lending; business cycle;

    JEL classification:

    • 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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