Hausman test.

The increase in macroeconomic uncertainty leads to inefficiency in the financial and banking sectors, resulting in a rise in Non-Performing Loans (NPLs). When macroeconomic uncertainty increases, financial institutions experience higher inefficiencies, reflected in increased NPLs, and with proper management solutions, the economy can move toward sustainability. This research analyzes the effect of severe macroeconomic shocks on the NPLs of the Iranian banking system using the Time-Varying Parameter Vector Autoregressions (TVP-VAR) model and a Panel Data Model. The study utilizes data from 2007 to 2021 on key macroeconomic indicators such as economic growth rate, inflation rate, interest rate, unemployment rate, and exchange rate, along with the ratio of Non-Current Claims to Total Facilities as an index of credit risk and the ratio of loans to total assets as a risk-taking index for banks. Our innovation lies in analyzing these variables dynamically, accounting for their correlation and mutual impact. The findings indicate that a 1% increase in inflation leads to a 0.0061% increase in NPLs, while a 1% rise in the unemployment rate results in a 0.0182% increase in NPLs. Conversely, a 1% increase in GDP growth reduces NPLs by 0.0036%. Furthermore, shocks to interest rates, exchange rates, and economic growth increase credit risk, with a 1% interest rate shock raising the default rate from 7.8% to 9.2% over time.