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The Wavelet Analysis: The Case of Non-Performing Loans in China

Author

Listed:
  • Elisa Di Febo

    (Department of Economic Studies, “G. d’Annunzio” University of Chieti—Pescara, Viale Pindaro 42, 65127 Pescara, Italy)

  • Eliana Angelini

    (Department of Economic Studies, “G. d’Annunzio” University of Chieti—Pescara, Viale Pindaro 42, 65127 Pescara, Italy)

Abstract

China has accelerated its banking sector reform in recent years, paying particular attention to non-performing loans (NPLs). The paper’s scope is to analyse the relationship between NPLs and macroeconomic variables in China using quarterly data from 2008/Q1 to 2021/Q1 applying wavelet analysis, which allows the study to scan both short- and long-term causal relationships and connections. The analysis produces interesting results. The GDP does not appear to be as important and as much of a driving force in the dynamics of NPLs as in other emerging countries. On the other hand, inflation shows a highly dynamic dependence on NPLs as it varies over time; however, the most interesting data is the relationship between NPLs and economic policy uncertainty. In the short term, the variables are in phase. In the long term, an increase of EPU has a reduction effect on NPLs, indicating that it affects commercial bank loan sizes by reducing enterprise demand for and bank supply of credit resources.

Suggested Citation

  • Elisa Di Febo & Eliana Angelini, 2022. "The Wavelet Analysis: The Case of Non-Performing Loans in China," Risks, MDPI, vol. 10(2), pages 1-16, February.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:2:p:32-:d:740765
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    References listed on IDEAS

    as
    1. Makram Nouaili & Ezzeddine Abaoub & Anis Ochi, 2015. "The Determinants of Banking Performance in Front of Financial Changes: Case of Trade Banks in Tunisia," International Journal of Economics and Financial Issues, Econjournals, vol. 5(2), pages 410-417.
    2. Shakeel Ahmed & M. Ejaz Majeed & Eleftherios Thalassinos & Yannis Thalassinos, 2021. "The Impact of Bank Specific and Macro-Economic Factors on Non-Performing Loans in the Banking Sector: Evidence from an Emerging Economy," JRFM, MDPI, vol. 14(5), pages 1-14, May.
    3. Aguiar-Conraria, Luís & Azevedo, Nuno & Soares, Maria Joana, 2008. "Using wavelets to decompose the time–frequency effects of monetary policy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(12), pages 2863-2878.
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