Panel Threshold Analysis Research Articles

Can Italy Grow Out of its NPL Overhang? A Panel Threshold Analysis

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. Estimating a heterogeneous dynamic panel-threshold model with data on 17 Italian regions over the period 1997-2014, we provide evidence for the presence of growth-threshold effects on the NPL ratio in Italy. More specifically, we find that real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio. Achieving such growth rates requires decisively tackling long-standing structural rigidities and improving the quality of fiscal policy. Given the modest potential growth outlook, however, under which banks are likely to struggle to grow out of their NPL overhang, further policy measures are needed to put the NPL ratio on a firm downward path over the medium term.

Debt and Default Risk Premium in Emerging Economies: New Evidence from a Panel Threshold Analysis

This paper explores the debt threshold for fiscal sustainability assessment for 14 emerging economies during the period 1999 to 2016. The threshold point is identified as the level which, if exceeded, promptly raises sovereign risk to an unsustainable level. As such, we employ a panel threshold analysis to the determination of debt limit, which can serve as a distinctive feature from other studies on fiscal sustainability. Our results demonstrate that non-Latin American economies are considered to be sustainable in the short run, as their debts remain below the threshold bounds of 40-55% of GDP. However, the long-run sustainability risk may emerge from a continuous upward trend in debt paths, implying the need for rebuilding fiscal buffers. It is important to emphasize that fiscal sustainability is far more challenging for most Latin-American economies. This is indicated by their debt accumulation beyond the threshold level of roughly 35% of GDP which is relatively lower than that estimated for the other countries. Indeed, during times of high debt, emerging countries in Latin America also face higher default risk since their sovereign risk premium respond more strongly to debt rise. Their paths toward fiscal sustainability, hence, requires an immediate imposition of strict fiscal discipline to relieve the debt pressure.

Is there a non-linear relationship between trade and growth? A panel threshold analysis for Central and Eastern European countries

It is suggested that international trade has a positive effect on the growth rate of economies. Although a vast literature has illustrated that open or more liberalised economies grow faster, the specific factors that promote this process have only recently begun to be investigated. We belive that there is a non-linear relationship between trade and growth, with the impact depending on a number of macroeconomic factors, i.e. the magnitude and even the direction of the effect of trade on economic performance might depend on other macroeconomic variables. Within this framework, our study aims to investigate the possible non-linearity in the trade-growth relationship, with a special focus on the financial deepening level for the selected Central and Eastern European (CEE) countries. Unlike the existing empirical literature on trade-growth nexus for the CEE economies, we utilise threshold regression techniques, where we allow the size and direction of the impact of trade on growth to differ between regimes, conditioning on the financial deepening level of these countries. Regarding credit growth and investment/credit ratio as thresholds, the countries in the upper regime benefit significantly more from trade.

When reduced working time harms the environment: A panel threshold analysis for EU-15, 1970–2010

Conventional wisdom has it that less working time is good for mitigating environmental pressure. Only a few studies have documented contradictory evidence. In this paper, we use panel threshold model, which is arguably the first of its kind in environmental analysis, to further document nonlinear relationships between working time and environmental pressure in EU-15 countries between 1970 and 2010. We find that the sign of this relationship shifts from positive to negative, as the working hours per worker decreases; France, Denmark, Germany, and the Netherlands experienced more environmental pressure with shorter working week. To the backdrop of reduced working time during our research period, our paper sheds new light on the traditional view of “the less, the better,” as curtailing working time beyond certain thresholds may inadvertently incur exacerbation of environmental pressure.

Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis

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. Estimating a heterogeneous dynamic panel-threshold model with data on 17 Italian regions over the period 1997-2014, we provide evidence for the presence of growth-threshold effects on the NPL ratio in Italy. More specifically, we find that real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio. Achieving such growth rates requires decisively tackling long standing structural rigidities and improving the quality of fiscal policy. Given the modest potential growth outlook, however, under which banks are likely to struggle to grow out of their NPL overhang, further policy measures are needed to put the NPL ratio on a firm downward path over the medium term.

Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis

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. Estimating a heterogeneous dynamic panel-threshold model with data on 17 Italian regions over the period 1997–2014, we provide evidence for the presence of growth-threshold effects on the NPL ratio in Italy. More specifically, we find that real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio. Achieving such growth rates requires decisively tackling long-standing structural rigidities and improving the quality of fiscal policy. Given the modest potential growth outlook, however, under which banks are likely to struggle to grow out of their NPL overhang, further policy measures are needed to put the NPL ratio on a firm downward path over the medium term.

Can Italy Grow Out of its NPL Overhang? A Panel Threshold Analysis

Can Italy Grow Out of its NPL Overhang? A Panel Threshold Analysis

Nonlinear relationship between institutional factors and FDI flows: Dynamic panel threshold analysis

We analyze the asymmetric linkages between institutional factors and foreign direct investment (FDI) flows and extend the literature in the following ways. First, we employ a dynamic panel threshold methodology to analyze whether a certain level of institutional quality should be attained to attract more FDI. Second, we use a composite institutional quality index, which includes various measures of institutional quality to identify the overall impact of institutions on FDI inflows. Finally, we consider the effects of the factors such as global liquidity and global risk measure, which gained importance in recent years. Our empirical results based on 126 countries over the period 2002–2012 reveal that institutional quality affects FDI positively only after this measure exceeds a certain threshold value.

Inflation and Economic Growth: A Dynamic Panel Threshold Analysis for Turkish Republics in Transition Process

Abstract This study investigates the influence of inflation on economic growth for five Turkish Republics (Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, and Turkmenistan) that are in the transition period through dynamic panel data analysis based on threshold. Study results indicate that there is a nonlinear relationship between inflation and growth rate; the threshold for the influence of inflation on economic growth is 7.97%, and an inflation rate above this threshold has a negative influence on economic growth while an inflation rate below this threshold has a positive influence on economic growth. These results show that a high inflation rate will have a considerable influence on economic growth. In this regard, it is important to achieve sustainable growth which plays a crucial role in increasing the efficiency of implemented monetary policies and assuring stability. Therefore, political and economic decision-makers in transition economies do not ignore the concept of threshold within the scope of monetary policy while determining the target inflation rate in their efforts to deal with inflation.

What is the effect of unconventional monetary policy on bank performance?

This paper examines the relationship between unconventional monetary policy and the US banking performance. Unconventional monetary policy is captured through the central bank's assets and excess reserves. Results show that unconventional monetary policy has a negative relationship with bank performance. Further analysis shows that the negative association between unconventional monetary policy and performance is mitigated for banks with a high level of asset diversification and low deposit funding. We also find that the negative relationship between unconventional monetary policy and performance subdues for deposit insured financial institutions. Finally, we use dynamic panel threshold analysis which reveals that the negative association between unconventional monetary policy and bank performance is particularly pronounced above the reported threshold value.

The Effect of Corporate Governance on the Performance of US Investment Banks

This paper focuses on the impact of the corporate governance, using a plethora of measures, on the performance of the US investment banks over the 2000–2012 period. This time period offers a unique set of information, related to the credit crunch, that we model using a dynamic panel threshold analysis to reveal new insights into the relationship between corporate governance and bank performance. Results show that the board size asserts a negative effect on performance consistent with the ‘agency cost’ hypothesis, particularly for banks with board size higher than ten members. Threshold analysis reveals that in the post‐crisis period most of investment banks opt for boards with less than ten members, aiming to decrease agency conflicts that large boards suffer from. We also find a negative association between the operational complexity and performance. Moreover, the CEO power asserts a positive effect on performance consistent with the ‘stewardship’ hypothesis. In addition, an increase in the bank ownership held by the board has a negative impact on performance for banks below a certain threshold. On the other hand, for banks with board ownership above the threshold value this effect turns positive, indicating an alignment between shareholders’ and managers’ incentives.

What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis

This paper examines factors that affect the performance of investment banks in the G7 and Switzerland. In particular, we focus on the role of risk, liquidity and investment banking fees. Panel analysis shows that those variables significantly impact upon performance as derived from Stochastic Frontier Analysis (SFA). Given our sample also comprises the financial crisis, we further test for regime switches using dynamic panel threshold analysis. Results show different underlying regimes, in particular over the financial crisis. In addition, a strong positive effect of Z-Score on performance for banks in the regime of low default risk is reported, while fee-income ratio has also a positive impact for banks with low level of fees. On the other hand, liquidity exerts a negative impact. Notably, there is a clear trend of mobility of banks across the two identified threshold regimes with regard to risk a year before the financial crisis. Our results provide evidence that recent regulation reforms regarding capital adequacy and liquidity requirements are on the right track and could enhance performance.

Panel threshold analysis of Taiwan's outbound visitors

The main purpose of this research is to explore the panel threshold effect of consumer prices in destination countries on the number of Taiwanese outbound visitors. It is assumed that a destination country's inflated prices contain one or more threshold values and have nonlinear relation with the number of Taiwanese people visiting that particular country, with asymmetric upper and lower boundaries. Scrutinizing 14 countries during a 14-year period (from 1998 to 2011), this study examines the panel threshold effects based on balanced panel data that comprises 196 observations. The empirical findings suggest the absence of any significant panel threshold effect, regardless of the assumed double or single threshold effect. According to an ensuing inter-segment symmetry analysis, impact factors within the range of study invariably indicated significantly positive relations, a sign that a destination country's consumer price index (CPI) has a positive linear relation with the number of Taiwanese people traveling abroad. In other words, the rising prices in destination countries do not reduce Taiwanese people's demand for traveling abroad. Instead, it reflects the improving economy as well as surging quality of life in a destination country that encourages refinement of products, perfects traveling facilities, and consequently lures quality-seeking tourists as well as Taiwanese outbound visitors. The finding gives a clear guidance that Taiwan's tourism policy shall add sophistication to services in every aspect.

Inflation and economic growth: A dynamic panel threshold analysis for Asian economies

This paper investigates the existence of a threshold level for inflation and how any such level affects the growth of Asian economies. We use a dynamic panel threshold growth regression, which allows for fixed effects and endogeneity. We observe a nonlinear relationship between inflation and economic growth for 32 Asian countries over the period 1980–2009. We detect an inflation threshold of approximately 5.43%, at a 1% level of significance. We find that inflation hurts growth when it exceeds 5.43% but has no effect below this level. Different estimation methods determine that the effect of inflation on growth is robust. Our findings may be useful to central banks as a guide for inflation targeting.

Inflation and growth: new evidence from a dynamic panel threshold analysis

We introduce a dynamic panel threshold model to estimate inflation thresholds for long-term economic growth. Advancing on Hansen (J Econom 93:345–368, 1999) and Caner and Hansen (Econom Theory 20:813–843, 2004), our model allows the estimation of threshold effects with panel data even in case of endogenous regressors. The empirical analysis is based on a large panel-dataset including 124 countries. For industrialized countries, our results confirm the inflation targets of about 2% set by many central banks. For non-industrialized countries, we estimate that inflation rates exceeding 17% are associated with lower economic growth. Below this threshold, however, the correlation remains insignificant.

Institutional Quality and Income Distribution

Institutional Quality and Income Distribution