Forecast uncertainty of non-performing loan in China

We explore the uncertainty of the non-performing loan ratio (NPLR) of banks in China. Based on one-year-ahead out-of-sample forecasts, we estimate both ex-post and ex-ante uncertainties from 2012 to 2022 using three different approaches that utilize both time-series and cross-sectional information. Ex-post uncertainty is high in 2017 due to regulatory policies and in 2022 due to the real estate crisis. Ex-ante uncertainty, on the other hand, better captures uncertainty in real time. These uncertainty estimates help policymakers by providing a practical quantification of risk and the information environment.