Abstract
This article addresses the problem of Non-Performing Loans (NPLs) both from a theoretical and policy viewpoint. It is argued that the mainstream literature on the factors affecting NPLs is hardly able to provide an adequate basis for proposing solutions, given the justification it offers to seemingly conflicting hypotheses. On the contrary, a Post-Keynesian Institutionalist perspective provides a realistic comprehensive theoretical explanation and method of inquiry that stresses historical and institutional specificity in guiding successful policies to cope with NPLs.
Notes
1 The link between theory and empirics in VAR modeling is blurred since causality between different variables is not informed by theory (Martins Citation2016, 229). Eventually, endogeneity and exogeneity in such models is a mere statistical outcome as the famous “Granger causality” indicates (Downward Citation2016, 213). However, the limits of econometrics in guiding a research project are further discussed in the section Theory and History Matter: A Post-Keynesian Institutionalist Rejoinder on Methodology and Policy of this article.
2 Exchange rate regimes fall into this institutionally informed category when evaluating their effect on the relationship between sovereign debt and NPLs. Indeed, as Ricardo Calvo and Frederic Mishkin (Citation2003, 115) put it, “an informed choice of exchange rate regime requires a deep understanding of a country’s economy, institutions and political culture.”
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Notes on contributors
Konstantinos Loizos
Konstantinos Loizos is a Research Fellow at the Centre of Planning and Economic Research (KEPE) in Athens, Greece, and postdoctoral researcher at the National and Kapodistrian University of Athens, Greece, Department of Economics. The author gratefully appreciates the comments of an anonymous referee.