CYCLICAL INTERACTS OF CREDIT RISK AND CREDIT-TO-GDP GAP IN EMERGING MARKET ECONOMIES

In the study, how the non-performing bank loans and the credit-to-GDP gap affected the economic and financial cycles in the emerging market economies were investigated. Especially the interactions of the non-performing loans and the credit-to-GDP gap with the variables reflecting the economic activity volume is emphasized. A panel data set compiled from 20 emerging market economies and consisting of annual data covering the period 1999-2014 has been analyzed. The panel VAR method developed by Cagala and Glogowsky (2012) is used as the analysis method. Findings confirm that bank loans have profound effects on economic activity volume and financial asset prices. On the other hand, it is also determined that this interaction is reciprocal. According to the findings, non-performing loans are severely affected by possible financial and real shocks. Likewise, the likelihood that credit shocks will cause serious fluctuations in both the real and financial economy has been determined. The credit-to-GDP gap, which is seen as a leading indicator of systemic bank crises, is also sensitive to real and financial shocks