Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies

July 1, 2011

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Credit, Financial institutions, Financial statements, Housing prices, Loans, Money, Nonperforming loans, Prices, Public financial management (PFM)

Keywords: asset quality, Banks, business fluctuations, Credit, Financial statements, Global, higher-than-expected NPL ratio, Housing prices, Loans, macrofinancial linkages, modeling NPL, nonperforming loans, NPL, NPL dynamics, NPL increase, NPL measure, NPL time series, price, unemployment, WP

Pages:
27
Volume:
2011
DOI:
https://doi.org/10.5089/9781455297740.001
Issue:
161
Series:
Working Paper No. 2011/161
Stock No:
WPIEA2011161
ISBN:
9781455297740
ISSN:
1018-5941

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