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Insolvency frameworks and private debt: an empirical investigation

Agostino Consolo, Federica Malfa and Beatrice Pierluigi

No 2189, Working Paper Series from European Central Bank

Abstract: This paper presents new evidence on the importance of insolvency frameworks for private sector debt deleveraging and for the resolution of non-performing loans (NPL). We construct an aggregate insolvency framework index (IFI), which is used as explanatory variable in the empirical analysis. By means of panel estimates over 2003-2016, we show that OECD countries with better IFI deleverage faster and adjust their NPL levels more rapidly than countries with worse IFI. We also show that there is a strong correlation between the level of NPL and IFI, which appears to be state-dependent, i.e. in a situation of high unemployment relative to its historical average the NPL ratio is generally lower for a higher IFI. Finally, our results indicate that better insolvency frameworks lead to faster NPL reductions and to lower NPL increases during economic bad times. JEL Classification: C23, E02, E05, O52

Keywords: insolvency frameworks; non-performing loans; panel estimates; private debt (search for similar items in EconPapers)
Date: 2018-10
Note: 591179
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