Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies

28 Pages Posted: 19 Jul 2011

See all articles by Mwanza Nkusu

Mwanza Nkusu

International Monetary Fund (IMF)

Date Written: July 2011

Abstract

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.

Suggested Citation

Nkusu, Mwanza, Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies (July 2011). IMF Working Paper No. 11/161, Available at SSRN: https://ssrn.com/abstract=1888904

Mwanza Nkusu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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