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Determinants Of Loan And Bad Loan Dynamics: Evidence From Italy

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  • Andrea Baldini

Abstract

In this paper we describe the dynamics of Loans and Bad Loans in the Italian Non-Financial Sector during the period 1998:4 to 2014:4. We use a Factor Model approach to take into account all of the macroeconomic factors that could affect the cyclical dynamics of the credit market, and we try to capture the causal effect of different variables at quarterly frequency, taking into account the structural break of the Great Recession. We reach two main conclusions: first, our evidence confirms the well-known negative relation between GDP variation and Bad Loan flows, and moreover shows a strong infra-annual Bad Loan reaction triggered by a GDP shock within a period of six months. Second, if we correctly remove structural economic factors we find that New Bad Loan Entry rate cause Loan variations. These facts are useful in formulating some policy conclusions.

Suggested Citation

  • Andrea Baldini, 2018. "Determinants Of Loan And Bad Loan Dynamics: Evidence From Italy," Departmental Working Papers of Economics - University 'Roma Tre' 0232, Department of Economics - University Roma Tre.
    • Handle: RePEc:rtr:wpaper:0232
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    More about this item

    Keywords

    empirical finance; non-performing loans; credit; factor models; favar.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G00 - Financial Economics - - General - - - General
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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