Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies

Author/Editor:

Mwanza Nkusu

Publication Date:

July 1, 2011

Electronic Access:

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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.

Series:

Working Paper No. 2011/161

Subject:

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

English

Publication Date:

July 1, 2011

ISBN/ISSN:

9781455297740/1018-5941

Stock No:

WPIEA2011161

Pages:

27

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