Loan loss provisioning, bank credit and the real economy

Sebastiaan Pool, Leo de Haan and Jan Jacobs

Journal of Macroeconomics, 2015, vol. 45, issue C, 124-136

Abstract: This paper examines how credit risk affects bank lending and the business cycle. We estimate a panel Vector Autoregression model for an unbalanced sample of 12 OECD countries over the past two to three decades, consisting of the output gap, inflation, the short-term interest rate, bank lending, as well as loan loss provisioning by banks (as proxy for credit risk). Our main findings are that: (i) bank lending and loan loss provisioning are important drivers of business cycle fluctuations, (ii) loan loss provisioning decreases in relative terms as bank lending increases, and (iii) bank lending is primarily affected by output fluctuations.

Keywords: Loan loss provisioning; Bank lending; Business cycle (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:45:y:2015:i:c:p:124-136

DOI: 10.1016/j.jmacro.2015.04.006

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