Macroeconomic determinants of credit risk: a P-VAR approach evidence from Europe

Abstract

The aim of this study is to develop a macroprudential approach in order to determine the most relevant factors able to explain the emergence of non-performing loans (NPL). For this purpose, we estimate an econometric model for analysing interrelationship among non-performing loans and the determinants of the credit risk in 18 European countries by using a panel vector autoregressive (PVAR) approach during the period 2000-2011. This study implies that credit risk determinants are similar to early warning indicators. Our empirical results show a bi-directional causal relationship between the credit risk evolution and four variables (GDP growth rate, unemployment rate, the stock price index and the non-performing loans).