{
  "title": "Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis",
  "publication": "IMF Working Papers, March 24, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/03/24/can-italy-grow-out-of-its-npl-overhang-a-panel-threshold-analysis-44761",
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  "summary": "This paper examines whether a tipping point exists for real GDP growth in Italy above which the ratio of non-performing loans (NPLs) to total loans falls significantly.",
  "sections": [
    {
      "heading": "Research question and scope",
      "content": "- Examines whether a tipping point exists for real GDP growth in Italy above which the ratio of non-performing loans (NPLs) to total loans falls significantly.\n- Empirical scope: data on 17 Italian regions over the period 1997–2014.\n- Methodology: estimation of a heterogeneous dynamic panel-threshold model."
    },
    {
      "heading": "Key findings",
      "content": "- Evidence for the presence of growth-threshold effects on the NPL ratio in Italy.\n- Estimated growth threshold: real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio.\n- Given the modest potential growth outlook, banks are likely to struggle to grow out of their NPL overhang without additional measures."
    },
    {
      "heading": "Analysis highlights",
      "content": "- The heterogeneous dynamic panel-threshold model is used to detect differential NPL dynamics conditional on regional real GDP growth.\n- The identified threshold effect implies nonlinearity: NPL-ratio behavior differs when real output growth is below versus above the 1.2 percent threshold.\n- Sustained growth above the threshold is required to generate a notable decline in NPL ratios rather than short-lived expansions."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Achieving sustained real GDP growth above 1.2 percent requires:\n  - Decisively tackling long-standing structural rigidities.\n  - Improving the quality of fiscal policy.\n- Because potential growth is modest, further policy measures beyond relying on growth are needed to put the NPL ratio on a firm downward path over the medium term.\n\n---\n\n Content in this bundle\n\n- Can Italy Grow Out of Its NPL Overhang?, WP/17/66, March 2017\n  - Can Italy Grow Out of Its NPL Overhang?, WP/17/66, March 2017 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Can Italy Grow Out of Its NPL Overhang?, WP/17/66, March 2017 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/03/24/can-italy-grow-out-of-its-npl-overhang-a-panel-threshold-analysis-44761"
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    "[Markdown version](/en/publications/wp/issues/2017/03/24/can-italy-grow-out-of-its-npl-overhang-a-panel-threshold-analysis-44761/index.md)",
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    "Authors: Kamiar Mohaddes, Mehdi Raissi",
    "Published: March 24, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475588651.001",
    "Examines whether a tipping point exists for real GDP growth in Italy above which the ratio of non-performing loans (NPLs) to total loans falls significantly.",
    "Empirical scope: data on 17 Italian regions over the period 1997–2014.",
    "Methodology: estimation of a heterogeneous dynamic panel-threshold model.",
    "Evidence for the presence of growth-threshold effects on the NPL ratio in Italy.",
    "Estimated growth threshold: real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio.",
    "Given the modest potential growth outlook, banks are likely to struggle to grow out of their NPL overhang without additional measures.",
    "The heterogeneous dynamic panel-threshold model is used to detect differential NPL dynamics conditional on regional real GDP growth.",
    "The identified threshold effect implies nonlinearity: NPL-ratio behavior differs when real output growth is below versus above the 1.2 percent threshold.",
    "Sustained growth above the threshold is required to generate a notable decline in NPL ratios rather than short-lived expansions.",
    "Achieving sustained real GDP growth above 1.2 percent requires:",
    "Because potential growth is modest, further policy measures beyond relying on growth are needed to put the NPL ratio on a firm downward path over the medium term.",
    "**Can Italy Grow Out of Its NPL Overhang?, WP/17/66, March 2017**"
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