DETERMINANTS OF LOAN AND BAD LOAN DYNAMICS: EVIDENCE FROM ITALY

Andrea Baldini

No 232, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

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.

Keywords: empirical finance; non-performing loans; credit; factor models; favar. (search for similar items in EconPapers)
JEL-codes: C22 C58 E51 G00 H81 (search for similar items in EconPapers)
Pages: 46
Date: 2018-01
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Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0232

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