A Macroeconomic Model of Credit Risk in Uruguay

Illanes, Gabriel; Pena, Alejandro; Sosa, Andrés

doi:10.5935/0034-7140.20160023

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Articles • Rev. Bras. Econ. 70 (4) • Oct-Dec 2016 • https://doi.org/10.5935/0034-7140.20160023 copy

A Macroeconomic Model of Credit Risk in Uruguay

Authorship SCIMAGO INSTITUTIONS RANKINGS

In this paper we evaluate credit risk of the economy as a whole, aiming at the study of the financial stability. This analysis uses as proxy the credit granted by the banking system. We use a non-linear parametric model based on Merton's structural framework for the analysis of the risk associated to a loan portfolio. In this model, default occurs when the return of an economic agent falls under certain threshold which depends on different macroeconomic variables. We use this model to assess the credit risk module in stress tests for the local banking system. We also estimate the "elasticities" of credit categories correspondig to corporate credit and consumer credit, both in national currency and american dollars. We obtain the parameters for the model using maximum likelihood, where the likelihood function contains a random latent factor which is assumed to follow a normal distribution.

Keywords:
Credit Risk; Default; Structural Models; Central Banking; Test Stress

	Coefficients	Typical Deviation	Statistic t
Constant	-2.4450	0.0514	-47.59
UR (-6)	6.8737	0.5884	11.68
IR (-3)	-2.1353	0.6946	-3.08
LRConP (-3)	0.7988	0.1170	6.83

	Coefficients
Constant	-2.3846
UR (-6)	6.1568
IR (-3)	-2.3524
LRConP (-3)	0.8742
ρ	0.0045

IR	LRConP	Unemployment Rate (UR)
IR	LRConP	7%	8%	9%	10%	11%	12%	13%	14%
5%	25%	3.2%	3.7%	4.2%	4.8%	5.4%	6.1%	6.9%	7.8%
	28%	3.4%	3.9%	4.4%	5.0%	5.7%	6.4%	7.3%	8.1%
	31%	3.6%	4.1%	4.7%	5.3%	6.0%	6.8%	7.6%	8.5%
	34%	3.8%	4.3%	4.9%	5.6%	6.3%	7.1%	8.0%	9.0%
	37%	4.0%	4.6%	5.2%	5.9%	6.7%	7.5%	8.4%	9.4%
6%	28%	3.2%	3.7%	4.2%	4.8%	5.4%	6.2%	6.9%	7.8%
	31%	3.4%	3.9%	4.5%	5.1%	5.7%	6.5%	7.3%	8.2%
	34%	3.6%	4.1%	4.7%	5.3%	6.0%	6.8%	7.7%	8.6%
	37%	3.8%	4.4%	5.0%	5.6%	6.4%	7.2%	8.0%	9.0%
7%	31%	3.2%	3.7%	4.2%	4.8%	5.5%	6.2%	7.0%	7.8%
	34%	3.4%	3.9%	4.5%	5.1%	5.8%	6.5%	7.3%	8.2%
	37%	3.6%	4.2%	4.7%	5.4%	6.1%	6.9%	7.7%	8.6%
8%	34%	3.3%	3.7%	4.3%	4.8%	5.5%	6.2%	7.0%	7.9%
8%	37%	3.5%	3.9%	4.5%	5.1%	5.8%	6.5%	7.4%	8.3%

Alternative 1		Alternative 2
	Coefficients		Coefficients
Constant	-2.2943	IR	-3.7541
GDP	-0.0038	RW	-0.0169
RER(-6)	0.0070	LRConP	1.2080
LRConP	0.8414	ρ	0.0364
ρ	0.0271

	Coefficients	Typical Deviation	Statistic t
GDP	-0.0217	0.0007	-29.31
RER (-12)	-0.0074	0.0011	-6.49
LRCorD	21.3200	1.4626	14.58
D2009	-0.4885	0.0955	-5.11

	Coefficients
GDP	-0.0221
RER (-12)	-0.0046
LRCorD	17.8457
D2009	-0.4607
ρ	0.0737

RER	LRCorD	Gross Domestic Product (GDP)
RER	LRCorD	-1%	0%	1%	2%	3%
-10%	2%	0.72%	0.65%	0.59%	0.53%	0.48%
	4%	2.20%	2.03%	1.87%	1.72%	1.58%
	6%	5.60%	5.24%	4.90%	4.58%	4.27%
	8%	11.90%	11.30%	10.71%	10.15%	9.61%
0%	2%	0.69%	0.63%	0.57%	0.52%	0.47%
	4%	2.14%	1.97%	1.82%	1.67%	1.53%
	6%	5.48%	5.13%	4.79%	4.47%	4.17%
	8%	11.70%	11.10%	10.53%	9.96%	9.43%
10%	2%	0.67%	0.62%	0.56%	0.51%	0.46%
	4%	2.08%	1.92%	1.77%	1.66%	1.50%
	6%	5.36%	5.01%	4.68%	4.37%	4.08%
	8%	11.50%	10.91%	10.34%	9.79%	9.25%

	Coefficients	Typical Deviation	Statistic t
Constant	-3.7114	0.0583	-63.61
UR	17.0033	0.5685	29.90
NER (-6)	0.6123	0.0772	7.93
D2009	-0.2251	0.0694	-3.24

	Coefficients
Constant	-3.5621
UR	16.0535
NER (-6)	0.6430
D2009	-0.2694
ρ	0.0401

RER	Unemployment Rate (UR)
RER	7%	8%	9%	10%	11%	12%
-20%	1.21%	1.87%	2.81%	4.10%	5.81%	7.99%
-10%	1.42%	2.18%	3.23%	4.66%	6.53%	8.90%
0%	1.66%	2.52%	3.70%	5.28%	7.33%	9.88%
10%	1.93%	2.90%	4.22%	5.96%	8.18%	10.92%
20%	2.24%	3.33%	4.79%	6.70%	9.10%	12.02%

	Coefficients	Typical Deviation	Statistic t	p-value
Constant	0.4013	0.1752	2.29	0.02
NER (-6)	0.9818	0.0852	11.52	0.00
GDP	-0.0225	0.0013	-17.40	0.00
CR	5.2724	0.9609	5.49	0.00
D2009	-0.5642	0.0786	-7.18	0.00

Model		Alternative 1		Alternative 2
	Coefficients		Coefficients		Coefficients
Constant	-2.9412	Constant	1.9266	Constant	-1.0015
UR	7.4698	RER	-0.0092	LRCorP	0.7974
LRCorP	0.5930	GDP	-0.0241	GPD	-0.0103
DUMMY	0.7026	DUMMY	-0.2320	DUMMY	-0.2069
ρ	0.0000	ρ	0.0427	ρ	0.0364

LRCorP	Unemployment rate (UR)
LRCorP	7%	8%	9%	10%	11%	12%
10%	2.47%	2.94%	3.47%	4.08%	4.77%	5.56%
15%	2.65%	3.14%	3.71%	4.35%	5.08%	5.89%
20%	2.83%	3.35%	3.95%	4.63%	5.39%	6.24%
25%	3.03%	3.58%	4.21%	4.92%	5.72%	6.60%

Model		Alternative 1		Alternative 2
	Coefficients		Coefficients		Coefficients
Constant	-0.4805	Constant	1.5938	Constant	-1.3693
UR	9.3977	NER (-6)	0.6631	UR	10.7032
RW	-0.0164	GDP	-0.0241	GPD	-0.0081
NER	0.5144	LRConD	-0.5645	LRConD	0.2502
ρ	0.0175	ρ	0.0244	ρ	0.0062

NER	RW	Unemployment Rate (UR)
NER	RW	7%	8%	9%	10%	11%	12%
-10%	-2%	6.65%	7.91%	9.32%	10.90%	12.63%	12.63%
	-1%	6.40%	7.62%	9.00%	10.54%	12.24%	14.08%
	0%	6.14%	7.34%	8.69%	10.19%	11.85%	13.66%
	1%	5.91%	7.06%	8.38%	9.85%	11.48%	13.25%
	2%	5.67%	6.80%	8.08%	9.51%	11.11%	12.85%
0%	-2%	7.32%	8.66%	10.17%	11.83%	13.63%	15.58%
	-1%	7.05%	8.37%	9.83%	11.45%	13.22%	15.14%
	0%	6.78%	8.06%	9.49%	11.08%	12.81%	14.71%
	1%	6.52%	7.77%	9.16%	10.72%	12.43%	14.28%
	2%	6.27%	7.46%	8.84%	10.37%	12.04%	13.87%
10%	-2%	8.04%	9.47%	11.06%	12.80%	14.68%	16.69%
	-1%	7.75%	9.14%	10.70%	12.40%	14.26%	16.24%
	0%	7.46%	8.82%	10.34%	12.02%	13.84%	15.80%
	1%	7.18%	8.51%	9.99%	11.64%	13.43%	13.35%
	2%	6.91%	8.21%	9.66%	11.26%	13.02%	14.92%

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