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Forecasting Charge-Off Rates with a Panel Tobit Model: The Role of Uncertainty

Author

Listed:
  • Xin Sheng

    (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, United Kingdom)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Qiang Ji

    (Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China)

Abstract
Based on a large panel dataset of small commercial banks in the United States, this paper employs a dynamic panel Tobit model to analyze the role of uncertainty in forecasting charge-off rates on loans for credit card (CC) and residential real estate (RRE). When compared to other standard predictors, such as house prices and unemployment rates, we find thatthe effect of uncertainty changes on charge-off rates is more pronounced. Furthermore, it is evident that including heteroskedasticity in the model specification leads to more accurate forecasts.

Suggested Citation

  • Xin Sheng & Rangan Gupta & Qiang Ji, 2020. "Forecasting Charge-Off Rates with a Panel Tobit Model: The Role of Uncertainty," Working Papers 202092, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202092
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    References listed on IDEAS

    as
    1. Laura Liu & Hyungsik Roger Moon & Frank Schorfheide, 2023. "Forecasting with a panel Tobit model," Quantitative Economics, Econometric Society, vol. 14(1), pages 117-159, January.
    2. Tyler Atkinson & David Luttrell & Harvey Rosenblum, 2013. "Assessing the costs and consequences of the 2007–09 financial crisis and its aftermath," Economic Letter, Federal Reserve Bank of Dallas, vol. 8(7), September.
    3. Kyle Jurado & Sydney C. Ludvigson & Serena Ng, 2015. "Measuring Uncertainty," American Economic Review, American Economic Association, vol. 105(3), pages 1177-1216, March.
    4. Mumtaz, Haroon, 2018. "Does uncertainty affect real activity? Evidence from state-level data," Economics Letters, Elsevier, vol. 167(C), pages 127-130.
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    Cited by:

    1. Carlos Canizares Martinez, 2023. "Leaning against housing booms fueled by credit," Working and Discussion Papers WP 9/2023, Research Department, National Bank of Slovakia.

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    More about this item

    Keywords

    loan charge-offs; panel data; Tobit model; forecasting;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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