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A Macroeconomic Model of Credit Risk in Uruguay

Gabriel Illanes, Alejandro Pena, Andrés Ricardo Sosa Rodriguez


This paper deals with credit risk in the Uruguayan aggregate economy and
therefore correspond to financial stability purposes. To analyze the risk associ-
ated with a portfolio of loans a nonlinear parametric model based on Merton’s
approach is used, in which a default event occurs if the returns of the economic
agent falls below a certain threshold that depends on macroeconomic variables. The estimated models can help to understand the relationship between credit
risk and macroeconomic indicators. The results obtained can be considered
for estimating the credit risk module in the stress tests framework of the local
banking system. ”Elasticities” of impact of the relevant macroeconomic factor
on credit risk are reported for corporate and households lending, both in local
currency and dollars. The parameters are obtained by the statistical technique of
Maximum Likelihood, where the function to maximize contains a latent random
factor that is assumed to have normal distribution.


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

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ISSN 0034-7140 (print) ISSN 1806-9134 (online)