s2fieldsofstudy: Economics History

text:
Effect of COVID-19 lockdowns on city-center and suburban housing markets: Evidence from Hangzhou, China

In 2020, governments worldwide enforced lockdowns to contain the spread of COVID-19, severely impeding aspects of daily life such as work, school, and tourism. Consequently, numerous economic activities were affected. Before the COVID-19 outbreak, city-center housing markets in areas surrounding popular tourist attractions performed better than did suburban housing markets because of the output of the tourism industry. This study examines the changes in the performance of city-center and suburban housing markets in regions with popular tourist attractions after the lockdown. Specifically, the dynamics of city-center and suburban housing markets in Hangzhou, where West Lake is located, and the changes in the information transfer between these housing markets after the lockdown are explored. Transaction data from January 1, 2019 to September 30, 2020 are used to perform analysis, in which adjusted housing prices and asking prices are employed to measure market performance and sellers’ pricing strategies, and transaction volume and time on the market are used to measure market liquidity and transaction frequency. The results reveal that the effects of lockdowns differ between city-center and suburban housing markets. After the lockdown, a substantial structural change is observed in the suburban housing market; the volatility risk of housing prices decreases substantially, causing an increase in transaction premiums. Housing prices and transaction volume increase in the city-center housing market after the lockdown; this is possibly because of the influence from the overall housing market booms. In addition, because sellers raise their asking prices and the transaction time is extended, the sellers in the city-center housing market are particularly influenced by the disposition effect. This leads to a reversal in the lead–lag relationship between the city center and suburban housing markets in terms of informativeness. Specifically, before the lockdown, the city-center market transfers information to the suburban market, but after the lockdown, the suburban market transfers information to the city-center market. The COVID-19 pandemic has changed the world in many aspects; this paper finds that it will also change the development pattern of the real estate market in different locations.

suburban housing prices rise substantially, with reduced volatility risks. Thus, COVID-19 lockdowns at the tourism level cause a spillover effect on housing markets. Qian (2015) note that Hangzhou, one of the oldest cities in China, has transitioned into a highly developed metropolis. Hangzhou is a major economic center in the Pearl River Delta. High development in Hangzhou has caused a tremendous rise in housing prices. Fig. 1 presents a time series chart of housing prices in Hangzhou provided by the National Bureau of Statistics of the People's Republic of China; the figure indicates a nearly double increase in housing prices from 2005 to 2020.

Housing markets in hangzhou
West Lake, located in downtown Hangzhou, holds meaning to China as a critical cultural landscape (Zhang et al., 2017) because it has facilitated the flourishing of the tourism industry in Hangzhou. The central districts of Hangzhou, namely Shangcheng, Xiacheng, Xihu, Gongshu, Jianggan, and Binjiang districts, are some of the earliest-developed areas in Hangzhou. The suburban areas are Yuhang and Xiaoshan districts (see Fig. 2).
Studies have investigated the characteristics of housing prices in Hangzhou. Wen et al. (2018) adopt a conventional feature model for housing price and the component regression method to explore the effect of new railroads on housing prices. The empirical results reveal that neighboring subway stations affect housing prices significantly; housing prices in areas within 2 km of a station are 2.1-6.1% higher than those in the areas far from stations. Wen and Xiao (2017) analyze residential information in Hangzhou in 2015 to examine the spatial effect of waterscapes on housing prices and discover that the accessibility of the Grand Canal affects housing prices considerably; for each 1% distance away from the canal, the price of a house decreases by 0.016%.
The aforementioned findings reveal that transportation and scenery are major factors affecting housing prices in Hangzhou. In terms of the factors affecting housing prices in different districts of Hangzhou, tourism is the most commonly discussed factor. In an analysis of the effect of West Lake on housing prices, Wen et al. (2014) employ 649 sets of residential data in 2011 to create a housing price feature model that involves the use of spatial regression analysis to identify the spatial effect of urban lakes on housing prices according to the heterogeneity of direction and distance. The results reveal that West Lake exerts a positive spillover effect on housing price; for each 1% increment of distance away from West Lake, the price of a house decreases by 0.159%. Wen and Zhang (2015) use the data on Hangzhou to create a feature model comprising factors such as residential structure, neighborhood, location, and scenery to evaluate the positive effects of different types of scenery on housing prices. The empirical results reveal that West Lake, Qiantang River, parks, mountains, rivers, and lakes strongly influence housing prices, indicating that urban residents are willing to pay higher housing prices to protect these natural environments. For each 1% increment of distance away from West Lake, the price of a house decreases by 0.229%.  collect residential data from six administrative districts in Hangzhou from 2003Hangzhou from , 2008Hangzhou from , and 2011 to create a conventional feature price model and a spatial model to analyze the effect of the city center on housing price dynamics in Hangzhou. The results indicate that Hangzhou has three city-center structures and that the city center influences housing prices considerably. In particular, West Lake plays a critical role in the spatial structure of housing prices; a notable increase between 2003 and 2011 is observed in the effect of proximity to West Lake, the most influential factor on housing prices.
The aforementioned findings indicate that tourism is a major factor affecting the housing market in Hangzhou. Numerous studies have demonstrated the impact of COVID-19 lockdowns on regions, industries, and economic activities associated with tourism and travel. Therefore, this study examines the effect of COVID-19 lockdowns on housing markets associated with tourist attractions.

Effect of COVID-19 on Hangzhou
On January 21, 2020, the first case of COVID-19 infection in Hangzhou was reported. In response, the government of Zhejiang Province, in which Hangzhou is located, declared a Level 1 major public health emergency 2 days after the report. On January 28, 19 new cases were reported in Hangzhou, constituting the highest number of cases reported in a single day at the time. Subsequently, the effects of COVID-19 on Hangzhou began to expand. On February 23, the centrally located Gongshu district became the first district to instate "closed-off management," or a lockdown. In addition, all public transportation in Yuhang District, a suburban district near West Lake, was suspended.
On February 4, 2020, a key date in the control of the pandemic, 10 measures were implemented to prevent and control the pandemic, and all villages, communities, and administrative units in Hangzhou entered closed-off management. That day, on which nine new cases of COVID-19 were reported, lockdowns began in Hangzhou. The pandemic in Hangzhou was effectively controlled after that day because the number of newly diagnosed cases reported each day did not exceed 10. Subsequently, to satisfy the needs of citizens and companies for work and production, the Hangzhou city government issued permissions to the first group of enterprises to resume operations on February 10. The second group of enterprises were permitted to resume operations on February 15, at which time more than 40,000 enterprises had resumed operations, and the majority of production activity in Hangzhou resumed. On March 2, the Zhejiang Province government adjusted the major public health emergency from Level 1 to Level 2.
Although the COVID-19 control measures in Hangzhou have gradually been relaxed, no country, including China, has completely overcome the crisis caused by the COVID-19 pandemic. The impact of the pandemic has exceeded that of the severe acute respiratory syndrome (SARS) pandemic in 2002 in terms of scope, severity, and duration. Several studies have explored this impact. Chopra and Mehta (2022) Albuquerque et al. (2020) have explored the effect of COVID-19 on the financial market. Kozlowski et al. (2020), Alon et al. (2020), Bick et al., (2020), Blundell et al. (2020), and Kramer and Kramer (2020) have investigated the changes in human society caused by COVID-19. Nakamura and Suzuki (2021) discover the effect that COVID-19 has had on labor markets and the intentions to migrate from developing countries.
Studies have explored the measures implemented by governments in response to the COVID-19 pandemic (Ashraf, 2020;Figari & Fiorio, 2020;Rowthorn, 2020). Several studies have investigated the effect of COVID-19 lockdowns on government policies (Beck & Wagner, 2020;Fadinger & Schymik, 2020). Few studies have explored the effect of COVID-19 on housing markets because gathering housing market data within a short amount time is difficult, and no study has examined the effect of lockdowns on tourist attractions. Therefore, this study investigates the effect of COVID-19 lockdowns on housing markets in areas near tourist attractions (i.e., city centers) and their surrounding regions (i.e., suburbs) to contribute to the field of research.

Samples
The data used in this study are acquired from Beike, an online platform that publishes housing transaction data on a daily basis. 1 The company that provides the data, ke.com, is the first real estate agency in China to be listed by the New York Stock Exchange. Because of its economies of scale, the market share of ke.com in the real estate transactions in Hangzhou has increased consistently, and it has acquired several local real estate transaction agencies in Hangzhou. Therefore, the housing transaction data provided by Beike are sufficiently numerous to accurately represent the housing market in Hangzhou.
This study analyzes transaction data from January 1, 2019, to September 30, 2020 on eight districts, namely the central Shangcheng, Xiacheng, Xihu, Gongshu, Jianggan, and Binjiang districts and the suburban Yuhang and Xiaoshan districts. The total number of data sets is 36,259, of which 1510, 1931, 4871, 3110, 5838, 1524, 14,108, and 3367 data sets are from Shangcheng, Xiacheng, Xihu, Gongshu, Jianggan, Binjiang, Yuhang, and Xiaoshan districts, respectively. This paper uses the variables of each housing transaction data set, which comprises total housing price (CN¥10,000), total asking price (CN¥10,000), time on the market (days), and other housing price characteristics such as residential area (m 2 ), number of bathrooms, rooms, and halls, and floor location. In order to make graphs to illustrate the situation of each day's housing market transactions, this paper calculates the average unit price each day to obtain the average housing price (HP) and the total trading number each day in the area to get the transaction volume (Vol). And for empirical model tests, this paper uses housing price characteristics to estimate the adjusted housing price (AHP) and the adjusted asking price (ALHP) based on transaction data. A description of all used variables is listed in Table 1.
Studies have discussed seller trading strategies by comparing two types of housing price: the seller's offering price and the actual trading price (Beracha & Seiler, 2014;Deng et al., 2022), which are thus used in the present study for analyses. Early research on seller pricing strategies, such as Horowitz (1992), has revealed sellers' tendency to set the offering prices higher than their reservation prices, which causes the final trading prices to be lower than the offering prices. This phenomenon is also observed in the present study data; for example, the average offering price in the Shangcheng District is higher than the average trading price by 37% (CN¥10,000).
To compare the transactions in the city-center and suburban housing markets, daily average unit price (per m 2 ; Fig. 3) and daily accumulated transaction volume (i.e., number of transactions; Fig. 4) in the city center and the suburbs are calculated. In Fig. 3(a), HP c and HP s represent the average unit price in the city center and the suburbs, respectively. According to the figure, both the average unit housing price and its daily change are considerably higher in the city center than in the suburbs. The calculation for each data period reveals that the average housing price per m 2 is higher in the city than in the suburbs by CN¥14,000 (i.e., by 53%). Therefore, location strongly influences the Hangzhou housing market.
In Fig. 3(b), Vol c and Vol s represent transaction volume in the city center and suburbs, respectively. The data reveal zero transactions from January 23 to February 19, 2020, a period in which Chinese New Year occurred and the lockdown began on February 4. The figure indicates an increase in transaction volume in both areas after the lifting of the lockdown. Before the enforcement of the lockdown, transaction volume is considerably higher in the city center than in the suburbs. After the lifting of the lockdown, for most of the data periods, transaction volume is higher in the suburbs than in the city center. This indicates that more transactions are performed in the suburban housing market than in the city-center housing market after the lockdown. Fig. 3 reveals the trend of average housing price before and after the coronavirus disease 2019 (COVID-19) outbreak. However, this housing price trend is not necessarily due to the COVID-19 pandemic because housing prices are affected by various factors, and housing estates traded at different times also vary in terms of characteristics. Some studies have employed the raw trading data of housing estates to investigate how the COVID-19 outbreak has affected the housing market. Nevertheless, controlling the effects of housing characteristic and trading time differences on housing prices for a rigorous estimation of the actual influence of COVID-19 is challenging. Yang and Zhou (2022) used average housing prices to discuss the effect of COVID-19 on housing prices in the Yangtze river delta region in China, without controlling housing quality or trading time differences. Studies have employed the difference-in-difference method (Qian et al., 2021) or nonparametric estimation (Zhao, 2020) to examine housing price changes before and after the COVID-19 outbreak. Cheung et al. (2021) and Huang et al. (2021) filter raw price data with hedonic housing price models to establish time series data of housing price and thereby observe housing price changes over time. This approach is also adopted in the present study because it, despite requiring a large sample of trading data, allows for a comprehensive examination of housing price changes over time before and after the pandemic. In addition, similar to other studies on housing prices in Hangzhou (Wen & Zhang, 2015;Wen et al., 2014Wen et al., , 2018Wen et al., 2017;, this study uses a hedonic model to estimate the data and control specific factors. The hedonic model that this paper used to obtain the fitted price to construct the time series data is as follows: where Total housing price (THP) is designated as the dependent variable, and the area of a residential building (area), number of bathrooms (bathroom), rooms (room), and halls (hall), and the floor of the residential space (floor) are the housing price feature variables used for estimation.
Housing characteristics vary across locations, and thus studies have highlighted the need to divide a single housing market into several submarkets for different regions (Costello et al. 2019;Lisi, 2019). According to the studies, because of the nature of the submarkets, one unique housing price feature model is implemented for each district in this paper. After the models for each district are created, the total estimated price of each residential building is calculated. The estimated price of the ith residential building is calculated as follows: The estimated price is subtracted from the actual transaction price to obtain the transaction premium of the ith residential building after the housing price feature variables are controlled, as shown in the following equation: where AHP i represents the adjusted housing price, which is regarded as the transaction premium. If AHP i > 0, then the actual transaction price is a relative premium (i.e., higher than the estimated price); if AHP i < 0, then the actual transaction price is a relative discount (i.e., lower than the estimated price). In the subsequent empirical analyses, housing price is estimated by using AHP i rather than the original prices. The asking prices are also estimated by using (1), and the asking price premiums (i.e., adjusted asking price) are calculated by using (3).

Empirical results
Table 2 displays the simple statistics of the housing market data, which are constituted of variables including transaction premium (AHP), asking price premium (ALHP), time on the market (DOM), and transaction volume (Vol). These variables are calculated Obtained by calculating the average unit price each day The transaction volume (Vol) Obtained by calculating the total trading number each day The adjusted housing price (AHP) (1) Using the housing price feature variables to estimate total housing price (2) The estimated price is subtracted from the actual transaction price to obtain the adjusted housing price, i.e., the transaction premium of the ith house The adjusted asking price (ALHP) (1) Using the housing price feature variables to estimate asking housing price (2) The estimated price is subtracted from the actual asking price to obtain the adjusted asking price, i.e., the asking price premium of the ith house separately for the city center and the suburbs. Transaction volume is calculated as the number of transactions performed in a district each day, and the other variables are defined as the daily mean values in each district. After the days with zero transactions are excluded from the data, a total of 589 data sets are obtained. Table 2 also lists the mean variable values before and after the lockdown. The verification statistics indicate a considerable increase in all variables after the end of the lockdown; specifically, AHP, ALHP, DOM, and Vol for both the city center and the suburbs increase substantially. In contrast to the deterioration of most financial markets due to the COVID-19 pandemic, 2 an increase in housing prices and transaction volume is observed in the housing market. Therefore, the effect of COVID-19 on the housing market is unique and must be further investigated. Table 2 presents the sequential nature of the variables. The results of a unit root test indicate that the variables are stationary. Table 3 presents the changes in city-center and suburb transaction price in Hangzhou after the lockdown. The effect of the lockdown on transaction price and their volatility risk is examined through measurement of heterogeneous volatility by using the generalized autoregressive conditional heteroscedasticity (GARCH) model, which is defined as follows: where Dummy indicates the dummy variable for the lockdown (1 indicates time after February 4, and 0 indicates the time before this date). Eq. (4.1) is a mean equation used to examine the effect of the lockdown on transaction premium, and (4.3) is a variance equation used to verify the effect of the lockdown on the volatility of the premium. According to Table 3, transaction premium and volatility risk in the city center are only self-correlated and did not exhibit significant structural change after the lockdown. Transaction premium in the suburbs is also autocorrelated. However, notable structural changes are observed in transaction premium and volatility risk in the suburbs after the lockdown. The mean equation shows that transaction premium is strongly affected by the dummy variable, with a coefficient of 3.58. This indicates that the average transaction premium increases by CN¥35,800 after the lockdown with the other conditions remaining unchanged. Volatility is considerably influenced by the dummy variable, with a negative coefficient, indicating that the volatility risk of the adjusted housing prices decreases substantially after the lockdown. Accordingly, although housing price and transaction volume in both the city center and the suburbs increase after the lockdown, the satisfactory performance of the city-center housing market may be the result of influence from the overall market. A structural change in the suburban housing market after the Hangzhou lockdown is observed; volatility risk decreases substantially, leading to an increase in transaction premium.
The difference in asking price between the city-center and suburban housing markets is also explored. Table 4 displays the results of the GARCH model estimation with asking price premium as the dependent variable. Neither market is affected by the lockdown in terms of asking price volatility. However, after the lockdown, a structural change in asking price is observed; asking price premiums increase substantially in both the city center and the suburbs. As the mean equation in Table 4 demonstrates, asking price in the city center is strongly affected by the dummy variable, with its premium increasing by CN¥63,700; the asking price premium in the suburbs increases by only CN¥33,900 after the lockdown. Because asking price is adjusted by the control variables, the increase in asking price for the city center is more substantial than the increase in asking price for the suburbs after the lockdown. When markets sustain a negative impact, the increase in asking price represents a disposition effect consistent with the behavior of loss aversion (Engelhardt, 2003). Studies have reported that sellers in housing markets tend to increase asking price to avoid losses, thereby increasing time on the market to achieve relatively favorable transaction prices. For example, Genesove and Mayer (2001) analyzed the trading data in central Boston's real estate markets during the 1990 s and found the phenomenon of the disposition effect, which is that real estate sellers are unwilling to recognize capital losses; hence they raise the selling price, causing selling period of the real estate is extended.
In addition to loss aversion and the disposition effect, studies have examined the relationship between asking price strategies and the other transaction variables in a market. As Table 4 shows, after the lockdown, a structural change in asking price is observed in the Hangzhou housing market; this may also influence the relationship between asking price and the other transaction variables. Table 5 presents the causal relationship among the four transaction variables, which can be used to determine whether the structural change in asking price is caused by the other variables or by changes in sellers' asking price strategies.
According to Table 5, sellers' asking price strategies are a major factor affecting transaction price in the city center. A lead-lag Notes: AHP i , ALHP i , DOM i , and Vol i (i = c,s) denote the adjusted housing prices, the adjusted asking prices, days on market, and volumes in the citycenter housing market and the suburban housing market, respectively. Number in parenthesis is p-value. The symbol * ** represents statistically significant at 1% levels. Notes: AHP c,t and AHP s,t denote the adjusted housing prices in the city-center housing market and the suburban housing market, respectively. Dummy denotes the dummy variable for the lockdown (1 indicates time after February 4, and 0 indicates the time before this date). Number in bracket is t-statistic. The symbols *** and ** represent statistically significant at 1% and 5% levels, respectively. relationship between asking price and transaction premium before the lockdown is observed; transaction premium is also affected by the transaction volume. Transaction volume can be used as an alternative variable to liquidity. Therefore, as Table 5 shows, before the lockdown, transaction premium in the city center is affected by asking price strategies and market liquidity. Market transactions are also influenced by asking price strategies. In other words, sellers adjust their pricing strategies dynamically. After the lockdown, a substantial structural change is observed in housing transactions in the city center. Transaction premium became a variable in Notes: ALHP c,t and ALHP s,t denote the adjusted asking prices in the city-center housing market and the suburban housing market, respectively. Dummy denotes the dummy variable for the lockdown (1 indicates time after February 4, and 0 indicates the time before this date). Number in bracket is t-statistic. The symbols *** and ** represent statistically significant at 1% and 5% levels, respectively. Notes: AHP i , ALHP i , DOM i , and Vol i (i = c,s) denote the adjusted housing prices, the adjusted asking prices, days on market, and volumes in the citycenter housing market and the suburban housing market, respectively. The symbols * ** and * * represent statistically significant at the 1% and 5% levels.
information lag. Asking price premium and market liquidity both influence time on the market, and asking price is affected by time on the market. In addition time on the market influences transaction premium. Table 5 demonstrates that no dynamic adjustments occur in asking price strategies in the suburbs. Before the lockdown, only time on the market influences transaction premium. No information lead-lag relationship between these transaction variables after the lockdown is observed. Asking price strategies are dynamically adjusted in the city center, and these adjustments strongly affect the other market variables. Moreover, structural changes in asking price strategies after the lockdown are observed. Fig. 4 presents the information transfer among the variables, which further demonstrates the changes in the city-center housing market after the lockdown. After the lockdown, the influence of asking price strategies on time on the market increases considerably, causing information lag in transaction price.
As Tables 4 and 5 and Fig. 4 show, the asking price strategies of the sellers in the city-center housing market are informative. After the lockdown, structural changes in asking price are observed. Specifically, sellers raise the asking prices and extend the time on the market to increase transaction prices. However, this also results in information lag in transaction price. This phenomenon does not occur in the suburban housing market. Thus, differences between changes in the city-center and suburban housing markets lead to changes in their informativeness.
The vector autoregression-multivariate GARCH model is applied to evaluate the relationship between the transaction variables of the city-center housing market and those of the suburban housing market to compare their informativeness. The correlation between these variables in terms of average performance and volatility and their information lead-lag relationship is investigated. With Y t as the transaction variable, the model is calculated as follows: where ε t and H t represent the residual and variance matrices, respectively. The data from before and after the lockdown are used in the estimation. Table 6 presents the data from before the lockdown. The correlation among the four transaction variables (i.e., transaction premium, asking price premium, time on the market, and transaction volume) in the city-center and suburban housing markets is explored. Table 6 lists the estimation results, which are used to examine the causal relationship between the variables of the two housing markets and identify their transaction informativeness. Table 7 displays the examination results. According to Tables 6 and 7, in terms of causality in mean, the city-center housing market is more informative than the suburban market before the lockdown. This is because the city-center and suburban housing markets exhibit a causal relationship of mutual Notes: AHP i , ALHP i , DOM i , and Vol i (i = c,s) denote the adjusted housing prices, the adjusted asking prices, days on market, and volumes in the citycenter housing market and the suburban housing market, respectively. Number in bold denotes statistically significant at 5% level. The estimated model can be described as follows.
where Y t denotes the variable vector, ε t and H t represent the residual and variance matrices, respectively. feedback only in transaction volume, which denotes market liquidity. However, the city-center housing market outperforms the suburban market in terms of information regarding transaction premium and time on the market. In terms of information transfer of market volatility, the two markets mutually influence each other for all variables. Tables 8 and 9 present the correlation and causal relationships between the four transaction variables in the city-center and suburban housing markets according to the data from after the lockdown. The two markets mutually influence each other for all variables in terms of information transfer of market volatility; however, in terms of causality in mean, the suburban market is more informative than the city-center market after the lockdown. This is because the suburban market outperforms the city-center market in terms of information response on transaction volume, which denotes market liquidity. The city-center housing market, which exhibits abundant information on transaction premium and time on the market before the lockdown, does not outperform the suburban market in terms of these variables after the lockdown. This is consistent with the results in Tables 4 and 5 and Fig. 4, which demonstrate that the transaction prices in the city-center market became less informative after the lockdown. Accordingly, sellers in the city center adjust their asking price strategies after the lockdown; in response to the negative impact of the pandemic, they raise price levels and in turn extend the time on the market. Consequently, the information response of the liquidity of the city-center market is slower than that of the suburban market.

Conclusion
Several countries have imposed lockdowns to prevent the spread of COVID-19, severely inhibiting daily life. Because of lockdowns, tourism has been prohibited or limited, causing major economic damage to the tourism industry and tourist attractions. This study explores the structural changes in the city-center and suburban housing markets of Hangzhou, China, in which the West Lake tourist attraction is located, after the COVID-19 lockdown.
Four variables are used to measure market performance and transaction frequency, namely transaction price, asking price, Notes: AHP i , ALHP i , DOM i , and Vol i (i = c,s) denote the adjusted housing prices, the adjusted asking prices, days on market, and volumes in the citycenter housing market and the suburban housing market, respectively. The symbols * ** and * * represent statistically significant at the 1% and 5% levels.
transaction volume, and time on the market. This study uses 36,259 transaction data sets from September 2019 to September 2020. After the rigorous estimations using the housing price feature model and the submarket (i.e., district) data, the daily data sequences on the city-center and suburban housing markets are created by incorporating the four variables. The raw data are processed to examine the effect of COVID-19 on housing markets. Because of the flourishing tourism industry and high economic value of the central districts of Hangzhou, such as Xihu District, housing prices in the city center are considerably higher than those in the suburban districts, which are relatively far from West Lake. Nevertheless, this study indicates that suburban housing prices increase substantially after the lockdown, and their volatility risk decrease. In the city-center housing market, because of the notable disposition effect from the sellers, only asking price exhibits a structural change. Therefore, the COVID-19 lockdown exerts a spillover effect, which is originated from the tourism industry and may have led to a decrease in the difference between the city-center and suburban housing markets in terms of housing price.
Further examination reveals that the asking price strategies implemented in the suburban housing market are not dynamically adjusted. Therefore, no noticeable disposition effect is detected in this market. In the city-center housing market, before the lockdown, transaction premium is influenced by asking price strategies and market liquidity, and market transactions influence asking price strategies; this indicates that sellers dynamically adjust their pricing strategies. After the lockdown, transaction premium in the city center begins to lag in information. Because the sellers increases asking prices substantially and thus extends the time on the market, although the transaction prices increase, information lag occurred for these prices.
The difference in the disposition effects may have affected the informativeness of the city-center and suburban housing markets. Therefore, this study investigates the transaction informativeness of the city-center and suburban housing markets after the COVID-19 lockdown. According to the results, the city-center market outperforms the suburban market in terms of transaction informativeness before the lockdown; by contrast, the suburban market outperforms the city-center market after the lockdown. The effect of the COVID-19 lockdown on housing markets near tourist attractions (city center) and their surrounding areas (suburbs) is examined to identify the structural changes in the local economy of these attractions after the lockdown. Future research should examine this topic from other perspectives to identify the appropriate response to the COVID-19 outbreak. Specifically, the results of this paper provide the following contributions and recommendations: 1. Following the COVID-19 outbreak, a large number of studies have investigated the influences of the pandemic from an urban perspective. For example, Liu (2020) and Hamidi et al. (2020) discussed why COVID-19 viruses spread more easily in some cities than in others. Regions are subjected to varying levels of influences by the pandemic; the regional economies may also be affected to various degrees and recover at different speeds due to differences in their local industries (Hayakawa & Keola, 2021). The present study explores the effect of the COVID-19 outbreak on Hangzhou. Such exploration has also been conducted in various cities, including Milan, Italy (Tricarico & Vidovich, 2021), Portland, USA (Figliozzi & Unnikrishnan, 2021), and Lisbon, Portugal (Batalha et al., 2022). Research on China has predominantly been focused on Wuhan (e.g., Kong et al., 2022;Xu et al., 2022). Although Hangzhou has been used as an example by Li et al., (2021) to discuss the effects of COVID-19 on housing prices, they examine only the relationship between Notes: AHP i , ALHP i , DOM i , and Vol i (i = c,s) denote the adjusted housing prices, the adjusted asking prices, days on market, and volumes in the citycenter housing market and the suburban housing market, respectively. Number in bold denotes statistically significant at 5% level. The estimated model can be described as follows.
where Y t denotes the variable vector, ε t and H t represent the residual and variance matrices, respectively.
built environment characteristics and infection rates. The present study provides local traders and competent authorities with insights into the changes of their housing markets. 2. Studies discussing the influences of COVID-19 on different cities vary in terms of their topics because of the heterogeneity among cities. For Hangzhou, the postpandemic changes of the tourism industry is of particular importance and requires continuous attention. Tourism is also among the most severely hit industries during the COVID-19 pandemic (Coibion et al., 2020;Lee & Chen, 2022). In their study on 12 international megacities, Liang et al. (2021) find that rental prices in these cities have been negatively impacted due to COVID-19 ′ s severe hit to the travel industry and particularly that travelers have tended to rent properties in the suburbs rather than downtowns. Ever since the lockdown in Hangzhou, the housing market performance in its tourist hotspots has differed from that of other regions. This finding implies that the COVID-19, through its effect on Hangzhou's tourism industry, also affects other markets in the city. The local government may have to pay additional attention to the effect of the tourism industry, if it remains unrestored, on the citizens' income and housing properties. Owners of downtown housing properties may bear the brunt of the pandemic because it has a particularly large adverse effect on the fluidity and informativeness of downtown housing market, which forces these owners to sell their properties within a short period of time. Such a situation has also been observed in other tourist attractions; for example, Batalha et al. (2022) focus their study on Lisbon, a tourist-intensive city, and reveal a negative effect of COVID-19 on the prices of downtown short-term rentals. Accordingly, local governments in tourist areas should pay attention to how well the tourism industry has recovered as well as changes in the housing market.
3. The effect of urban population density on COVID-19 spread has been verified in several studies (e.g., Almagro & Orane-Hutchinson, 2022;Carozzi, 2020;Hamidi & Sabouri, 2020), which explains why people's residential migration has been changing, as observed in some research. In contrast to people's previous preference for living in downtowns, studies have revealed increasing residential migration from downtowns to suburbs after the COVID-19 outbreak (e.g., Duca et al., 2021;Gallent & Madeddu, 2021;Lee & Huang, 2022). Such a pattern of residential migration changes not only the urban population density but also the housing prices in downtowns and suburbs. According to evidence provided in the present study, downtowns and suburbs differ in terms of how Notes: AHP i , ALHP i , DOM i , and Vol i (i = c,s) denote the adjusted housing prices, the adjusted asking prices, days on market, and volumes in the citycenter housing market and the suburban housing market, respectively. The symbols *** and ** represent statistically significant at the 1% and 5% levels.
their housing prices are affected by lockdowns, indicating a convergence of their housing prices. Gupta et al. (2021) state in their recent study in the United States that the differences among regional housing prices will continue to decrease, suggesting a flattening effect of COVID-19 on housing prices. A flattening effect is also observed in the present study's investigation into the Chinese housing market. According to Gupta et al. (2021), such a flattening effect prompts the need to reevaluate housing prices and thus considerably affects housing market investments. Given the observed convergence between downtown and suburb housing prices in Hangzhou, the present study recommends that investors and governments in China stay aware of the potential flattening effect of COVID-19 on the Chinese housing market.

Data Availability
The authors do not have permission to share data.


s2fieldsofstudy: Economics Business

text:
Non-Performing Loans and Macroeconomics Factors: The Italian Case

: The purpose of this work is to investigate the inﬂuence of macroeconomics determinants on non-performing loans (NPLs) in the Italian banking system over the period 2008Q3–2020Q4. We mainly contribute to the literature by being the ﬁrst empirical article to study this relationship in the Italian context in the recent period, thus providing fresh evidence on the macroeconomic impact on NPLs, i.e., on the credit risk of Italian banks. By employing the Autoregressive Distributed Lag (ARDL) cointegration model, we are able to investigate the short and long-run effects of macroeconomic factors on NPLs. The empirical ﬁndings show that gross domestic product and public debt have a negative impact on NPLs. On the other hand, we ﬁnd that the unemployment rate and domestic credit positively inﬂuence impaired loans. Finally, we ﬁnd evidence of the “gamble for resurrection” approach, i.e., Italian banks tend to support “zombie ﬁrms”. stress tests, and the new IFRS-9 standard. Our results suggest that macro-prudential policies can play a signiﬁcant role in preventing NPL problems (Ari et al. 2021).

Introduction
In a perfect world, every debtor would pay their debt. The banks would then lend more and more money to businesses and households, which would always repay the debt, and so on. Unfortunately, this perfect circuit exists only in a hypothetical world, not in reality. If your consumption is my income, your debt is my credit, from which it follows that if I am in trouble, you will be in a bad situation. This represents the classic example of the connection between finance and the real economy. If we think about the recent financial crises, we can understand what these entail in terms of consequences. When the debtor fails to pay, the bank will have sick credits, or impaired credits, in its belly. Non-performing loans (NPLs), in turn, are the most significant determinants of credit risk: higher credit risk, higher probability of default.
NPLs are the legacy of the great crises that hit the capital market in 2008 and 2012 and were quickly transmitted to the real economy. In Europe, NPLs peaked in 2015, surpassing €1 trillion in gross lending, twice as much as in 2009. During 2015, Italy had the highest number of NPLs in Europe, namely a 16.70% ratio (Bolognesi et al. 2020;Cincinelli and Piatti 2017). Considering that the Italian banking system is bank-centric (Foglia and Angelini 2019), studying the dynamics of NPLS in this context is crucial, especially in light of the recent impact of the COVID-19 pandemic. As a matter of fact, the deterioration of banks' credit quality is one of the leading causes of financial system fragility that generally leads to banking crises (Bijsterbosch and Falagiarda 2015;Konstantakis et al. 2016). Indeed, the level of NPLs affects the banking efficiency, which in turn affects the financial stability, and the real economy (Khan et al. 2020). Moreover, high non-performing loans reduce banks' profits. The lower profitability stems from the fact that high NPLs require higher provisions, leading to lower interest income and higher expenses associated with monitoring them. This translates into a contraction in the credit supply to businesses and households, i.e., in the real economy.
Therefore, the work aims to verify the existence of a possible relationship between the increase in impaired loans and their dependence on the economy. We attempt to test the hypothesis that the macroeconomic environment (GDP, unemployment, public debt, domestic credit) has a significant impact on the NPLs in the Italian context. In particular, we want to identify which are the key macro-variables that influence the NPLs behavior. Indeed, it is urgent to understand and identify the external factors influencing NPLs in order to provide appropriate preventive measures to policymakers. For this purpose, we use an Autoregressive Distributed Lag (ARDL) cointegration model, using quarterly data for the period 2008Q3-2020Q4, which allows us to identify the macroeconomic determinants of non-performing loans in the short and long run. This information can help policy markers on the timing of intervention.
Our results confirm our hypotheses, i.e., macroeconomic factors play a crucial role in the dynamics of impaired loans in Italy. The findings can be summarized as follows. First, the empirical evidence shows a negative relationship between GDP and an increase in NPLs and between public debt and NPLs. On the other hand, we find that the unemployment and credit to the private sector are positively correlated with the NPLs ratio growth. Second, the short-run coefficients have lower values than in the long-run, suggesting that in the short-run the impact of a change in a macroeconomic determinant is less than in the long run. Third, we find that the coefficient of the error correction term (ETC t−1 ) is small, suggesting that the adjustment to the long-run equilibrium is slow. This means that the imbalance caused in the previous period (quarter in our case) converges to long-run equilibrium in the current quarter only partially (11%).
The research contributes to the literature in three respects. First, to our knowledge, it is the first work that studies the impact of the macroeconomic environment in Italy during the recent period. Several papers have analyzed this relationship in the U.S. (Ghosh 2015), European (Makri et al. 2014;Rinaldi and Sanchis-Arellano 2006), Greek (Anastasiou et al. 2019;Konstantakis et al. 2016;Louzis et al. 2012), France and Germany (Chaibi and Ftiti 2015), India (Gaur and Mohapatra 2020;Mishra et al. 2021), and other world regions (Beck et al. 2015;Espinoza and Prasad 2010;Hada et al. 2020;Kjosevski et al. 2019;Nkusu 2011;Tanasković and Jandrić 2015;Zheng et al. 2020;Žunić et al. 2021) contexts. However, only Bofondi and Ropele (2011) studied the relationship between macroeconomic variables and bad loans in the Italian context from 1990 to 2010. Therefore, our research provides fresh evidence on the macroeconomic impact on NPLs, i.e., on the credit risk of Italian banks. Second, using the ARDL methodology, we capture the short-and long-run relationship between impaired loans and the real economy. By analyzing changes in the Italian macroeconomic environment, we show evidence that the adjustment of the long-run equilibrium is slow, namely, a shock in the real economy has a significant impact on the dynamics of NPLs in the long run. Therefore, the slow adjustment to equilibrium allows policymakers to (quickly) intervene to constrain adverse effects on the real economy. Third, we find evidence of the "gamble for resurrection" approach (Angelini 2018). High levels of NPLs could create a "risk shifting" incentive for banks to invest in riskier projects. Our findings suggest that the Italian banking system tend to support "zombie firms" 1 (Acharya et al. 2020;Caballero et al. 2008;Gandrud and Hallerberg 2017;Laeven and Valencia 2018). Hence, poor credit allocation management could generate negative consequences for the economic system, especially in the current context of the pandemic COVID-19.
The paper is organized as follows. Section 2 presents the literature review and our hypotheses, Section 3 describes the methodology employed, while Section 4 shows our data sample. Section 5, reports the empirical results and some discussion of the results, while Section 6 offers concluding remarks.

Literature Overview
In recent years, several studies have focused on the determinants of NPLs at the macroeconomic level. One of the first research is the work of Rinaldi and Sanchis-Arellano (2006), who analyze the impact of public debt, income, inflation, interest rate, and unemployment on Eurozone household financial condition. For this purpose, the authors use a Panel Cointegration model. Their results emphasize the role of income as a determinant of households' financial stability. Espinoza and Prasad (2010) examine the relationship between NPLs and macroeconomics factor in Gulf Cooperative Council (GCC) banks over the period 1995-2008. By dynamic panel model, the authors find how GDP and financial market conditions strongly impact NPLs. Focusing on Advanced Economies context, Nkusu (2011) investigates the macro determinant of impaired loans using a Panel VAR framework. His findings document the close relationship between the macroeconomic environment (unemployment rate, GDP, inflation) and loan repayment problems. Also, in this case, GDP has the most significant (negative) impact on NPLs. Bofondi and Ropele (2011), by single-equation approach, study the macroeconomic factors of banks' loan quality in Italy (1990Q1-2010Q2). The research focuses on both household and corporate NPLs. They find that GDP growth reduces impaired loans, while the unemployment rate positively impacts NPLs. Louzis et al. (2012) use data from 2003Q1 to 2009Q3 and a panel data model to analyze the impact of macro and bank-specific variables on NPLs in the Greek banking sector. Their results show how the GDP growth rate, the lending rates, the unemployment rate, and public debt have a significant impact on NPLs, as well as the quality of management. Investigating the Countries of the CEE region, Škarica (2014) and Tanasković and Jandrić (2015) find that economic slowdown (a decrease of GDP and an increase in unemployment) is the main determinant of bank's quality. In particular, Tanasković and Jandrić (2015) (pp. 59-60) find that the "countries with a high level of euroization will have more problems with the level of NPLs, which is even more pronounced in periods of domestic currency depreciation". Makri et al. (2014) use a dynamic panel framework covering the period 2000-2008 to investigate the determinants of NPLs of 17 countries of the Eurozone. The authors document how the capital ratio, ROE public debt, GDP, and unemployment, influence the dynamic of NPLs. The same results are reached by Chaibi and Ftiti (2015) that explore specifically two country of the Eurozone area, namely France and Germany. Moving toward the US banking system, Ghosh (2015) analyzes the bank-specific and macro determinants for 50 commercial banks and savings institutions over the period 1984-2013. The paper shows how liquidity risk and profitability have a significant impact on credit quality. Focusing on the macroeconomics environment, the author finds that the unemployment rates and the public debt positively affect NPLs growth. In another study, Beck et al. (2015) investigate the macroeconomics determinant of NPLs across the global sample (75 countries) over the period 2000-2010. Their findings suggest how "a drop in global economic activity remains the most important risk for bank asset quality". Further, the result reports that a decrease in bank stock prices negatively affects bank asset quality. Regarding the Greek banking system, Konstantakis et al. (2016), by vector error correction model (VECM), figure out the key role played by public debt on NPLs pattern. This suggests how the Greek fiscal problems during the sovereign debt crisis are associated with the NPLs boost. Anastasiou et al. (2016) conduct an investigation on the Euro area banking system for the period 1990Q1-2015Q2. By GMM estimations, the authors find that ROA and ROE negative affect the NPLs, as well as the GDP growth and public debt. Moreover, they evidence a significant positive coefficient for the unemployment rate. Similar results are highlighted by Anastasiou et al. (2019) and Bussoli et al. (2020). In particular, Anastasiou et al. (2019), using a fully modified ordinary least squares (FMOLS) model and a Bayesian panel-cointegration vector autoregression framework, evidence the importance of banking market fragmentation within Eurozone countries. In fact, the analysis highlights the negative effect of austerity policies on periphery countries, namely a positive effect on NPLs. Kjosevski et al. (2019) utilize a multivariate Autoregressive Distributed Lag (ARDL) model to study the bank-specifics and macro determinants to enterprises and households in the Republic of Macedonia. Their results support the notion that macroeconomic factors such as GDP growth and unemployment rate impact the level of NPLs. In addition, bank-specific variables such as profitability, business, and household loan growth have a negative effect, while bank solvency positively affects the NPLs. Focusing on the banking system of Bangladesh, Zheng et al. (2020) document the strong relationship between macroeconomic environment and credit risk. By an ARDL and VECM cointegration model, the authors find a negative impact of GDP and unemployment rate on NPLs dynamics. At the same time, they document a positive effect of the domestic credit and exchange rates on NPLs. Hada et al. (2020) investigate, by a linear regression approach, the macroeconomic determinants for the NPLs of Romanian banks over the period 2009-2019. Their findings show that unemployment and the exchange rate are the main determinants of NPLs. Gaur and Mohapatra (2020) and Mishra et al. (2021) study the nexus between NPLs and macroeconomic variables in the Indian banking system. Both papers document policymakers' importance of monitoring macroeconomic conditions to ensure a more robust Indian financial system. Moreover, Kjosevski and Petkovski (2021) examine the bank-specific and macro determinants on NPLs for the Baltics States. By a Panel framework, their empirical work documents that the GDP, unemployment, public debt, and inflation significantly impact NPLs. Focusing on bank-specific variables, they find that the total asset, ROE, ROA, and loans growth are crucial determinants of credit risk. More recently, the work of Ari et al. (2021), by machine learning approach and a new global database, aims to understand the "risk factors" underlying credit quality. Their fresh results highlight how high credit growth, high public debt, low bank profitability, and high corporate debt are the main factors in the dynamics of NPLs.

Theoretical Hypothesis
The literature review found that macroeconomic variables play a crucial role in the evolution of NPLs. In this section, we present the four following hypotheses that we want to test.

Hypothesis 1.
There is a negative relationship between GDP and NPLs. Indeed, a GPD increase indicates higher income stream for households and higher profitability for businesses. Therefore, improved financial conditions for businesses and households imply a reduction in NPLs as they are able to repay their debts (Anastasiou et al. 2016;Bofondi and Ropele 2011;Espinoza and Prasad 2010).

Hypothesis 2.
There is a positive correlation between public debt and NPLs. The reason goes back to the close connection between banking and sovereign crises, namely the diabolical loop (Reinhart and Rogoff 2011;Shambaugh et al. 2012). For example, in conditions of low liquidity, banks may be forced to cut back on lending and thus refinancing credit to their customers (Ghosh 2015). This suggests that an increase in government debt could spill over into banks' asset quality.
Hypothesis 3. The unemployment has a positive impact on NPLs. The general idea is that an increase of unemployment rate curtail the purchasing power of households, i.e., they are unable to meet their debt obligations (Anastasiou et al. 2016;Bofondi and Ropele 2011;Kjosevski et al. 2019;Rinaldi and Sanchis-Arellano 2006).

Hypothesis 4.
The link between domestic credit could be either negative or positive contingent on the economic cycle and banks' preferences. For example, in an economic growth phase, banks might lend more money as consumers have sufficient income streams to repay their debts. In contrast during economic downturns (Ari et al. 2021;Konstantakis et al. 2016). The relationship also depends on the bank's predisposition to risk. For instance, a more risk-averse bank might only lend to "more financially sound" customers. This would imply less risk of NPLs (Anastasiou et al. 2019).

Research Methodology
In order to investigate the relationship between NPLs and macroeconomics determinants, we use the ARDL cointegration model proposed by Pesaran et al. (2001) 2 . This framework has two main advantages. First, the ARDL model can be applied regardless of the cointegration order of the variables, i.e., I(1), I(0), or a mixture of both. Second, it can be performed to a small sample size (Bahmani and Kutan 2010;Mah 2000) such as in our case. The ARDL model is given by: where y is the dependent variable (NPLs in our case), x are the macroeconomics factors (Gross Domestic Products, Public Debt, Unemployment rate, and Domestic Credit), ∆ stands for the first difference operator while ε t is the error term. The β coefficients are the short-term representation of the model, while λ parameters capture the long-term relationship. To test the presence of long-run relationship, Pesaran et al. (2001) develop two tests of asymptotic critical values for the F-test. The first one assumes that all variables are I(0) while the second that they are I(1). Accordingly to Pesaran et al. (2001), the null hypothesis of no cointegration is defined as follows: H 0 = λ 1 = λ 2 = 0 against H 1 = λ 1 = λ 2 = 0. Therefore, if the F-statistic turns out to be greater than its upper bound, the null hypothesis of no cointegration between the variables can be rejected, so longrun cointegration exists. Conversely, if the F-statistic is less than its lower limit, the null hypothesis cannot be rejected, i.e., no cointegration among variables.

Data
The data sample covers the period from the third quarter of 2008 to the fourth quarter of 2020 (50 obs.) 3 . Table 1 reports the source and the unit measure of variables. Figure 1 shows the behavior of NPLs ratio throughout the analysis. As we can see, the dynamic follows a "bell-shaped" pattern. A substantial increase from 2008 to 2014 is matched by a decrease since 2017.
The NPLs substantially increased after the sovereign debt crisis, recording its highest point. As the literature has shown (Anastasiou et al. 2019;Bussoli et al. 2020;La Torre et al. 2019), the sovereign debt crisis has had repercussions on the balance sheets of banks as a result of impaired loans. In fact, the drastic reduction in the profitability of companies has split over to the liquidity of households, which have had great difficulty in repaying their loans. In addition, rising unemployment has played a key role in the transmission of financial risks. The close relationship between corporate profitability, households, and unemployment has triggered the emergence of deteriorating credit problems in the Eurozone and especially in Italy.
From 2014 onward, we can observe a gradual reduction in the relationship. This reduction can be attributed to better general economic conditions, but also to structural changes in the Italian banking system, such as reform of the cooperative credit banks by Decree-law No. 18 of 14 February 2016, the Guarantee on Securitization of Non-Performing Loans (GACS) package, as well as the Atlante fund. In Table 2, we display the summary statistics of our data. The skewness coefficients are negative, implying a thicker lower tail. The kurtosis coefficient is greater than 3 for the GDP, indicating that this variable is more peaked than in the case of a normal distribution. This is confirmed by the Jarque-Bera test, which rejects the null hypothesis of the normal distribution at the 1% significance level for the GDP. The Variable Inflation Factors (VIF) test indicates the absence of multicollinearity problem, i.e., all values are less than 10. Finally, in order to evaluate the characteristics of these variables, we perform the Augmented Dickey-Fuller (ADF) unit-root test. The reported numbers are the t-statistics, while the appropriate lag length for the ADF test is selected using Schwarz Bayesian criterion. As the ADF test indicates, only the GDP is stationary at level (I(0)), while the NPLs, PD, UR, and DC become stationary after their first differentiation (I(1)). Hence, our sample is fully compliant with the ARDL model; then, we can perform the ARDL model without further transformation.

Empirical Findings
In Table 3, we report the F-values for testing the existence of the log-run cointegration 4 . The F-statistics must be compared with the critical bounds developed by Pesaran et al. (2001). To choose the optimal lag, we applied the Schwartz-Bayesian criterion (SBC), imposing a maximum of four lags. The table shows that the F-statistic (12.03) is higher than the critical upper bound value at the 1% significant level, therefore we can reject the null hypothesis, i.e., existing long-term cointegration. After checking for the existence of cointegration between NPLs and the macroeconomic factors, we obtain the estimates of the long-run coefficients. Table 4, reports the ARDL model estimates, along with the diagnostic tests. As we can observe from Table 4, all variables are statistically significant, and the coefficients have the signs in agreement with our assumptions, except for the public debt. Gross domestic product (GDP), has a significant negative relationship with NPLs. GDP growth of 1% leads to a decrease in non-performing loans (credit risk) of 0.45%. In fact, an increase in economic conditions increases the ability of the borrower to repay the debt due to the increase in income. Our results are perfectly in line with the studies by Bofondi andRopele (2011), Anastasiou et al. (2016) and Anastasiou et al. (2019), suggesting the procyclicality of credit risk (Kjosevski et al. 2019).
Public debt (PD), contrary to our assumptions, has a negative impact on NPLs. This controversial result can be explained by the fact that the analysis was conducted during the period from 2008 to 2020, i.e., during the recent financial crises that hit the Italian financial system. A series of reforms were made to combat the problem of impaired loans, for example, the reform of the cooperative credit banks by Decree-law No. 18 of 14 February 2016, the Guarantee on Securitization of NonPerforming Loans (GACS) package, the Atlante fund and the Italian Recovery Fund. While on the one hand, they are not state aid (Please see Galand et al. (2017)) (as they are prohibited in a Eurozone monetary union), on the other hand, sovereign debt has increased due to the various bank bailouts (such as the Montepaschi bank case 5 ). Moreover, the shock caused by COVID-19 is expected to generate a sharp increase in new NPL flows in the coming years. However, this has not yet happened, thanks to the government measures that have essentially "frozen" the portfolios through the so-called moratoria. Therefore, the Italian government's intervention has a strong impact on NPLs. Our findings suggest that a 1% increase of PD implies a reduction of 0.38% of non-performing loans. This result is in disagreement with the main literature results (Ghosh 2015;Makri et al. 2014;Reinhart and Rogoff 2011), but in accordance with the work of Anastasiou et al. (2016), who find a negative impact of public debt on Euro area impaired loans (NPLs).
Focusing on the unemployment rate (UR), we find that the coefficient is positive and statistically significant at 1%. These findings evidence the important role played by the labor market on NPLs. In fact, an increase in unemployment implies a decrease in effective demand, i.e., a significant drop in output. This in turn will result in a decline in wealth for households and firms, hence lower-income, namely lower ability to repay debts. All of this translates into an increase in non-performing loans for the financial sector. These findings are fully consistent with the literature (Anastasiou et al. 2019;Bofondi and Ropele 2011;Kjosevski et al. 2019;Konstantakis et al. 2016;Louzis et al. 2012;Makri et al. 2014).
Finally, we can note the positive impact of domestic credit on NPLs. This positive relationship may reflect a credit boom with lower credit quality. In fact, excessive loan growth is often coupled with lower lending standards and collateral requirements (Kirti 2018;Schularick and Taylor 2012). Aikman et al. (2015)  impact of the bank credit ratio on NPLs. According to the estimation results, an increase of 1% in domestic credit generates a rise of 0.49% in the long-run rate of NPLs. This finding highlights the presence of the risk-taking effect of the Italian banking system.
We perform several diagnostic tests to assess the adequacy of the model. The Lagrange multiplier (LM) test for two different lags is not significant. This implies that the disturbances are serially unrelated. In addition, the Breusch-Pagan-Godfrey test indicates the absence of heteroskedasticity. Moreover, the model is correctly specified as suggested by the insignificant RESET test.
Once the long-run relationship is estimated, we report the estimates of the short-term dynamic model in Table 5. As we can note, the results obtained are relatively similar to those observed with the long-run dynamics. In fact, also, in this case, all variables are statistically significant, and the signs are the same. In the short-run estimate, the coefficients take on lower values, suggesting that in the short-run the impact of a change in a macroeconomic determinant is less than in the long run. For example, a 1% increase in GDP will cause a 0.05% reduction in NPLs, compared to the long-run reduction (0.45%). Regard the error correction term (ETC t−1 ) is negative and statistically significant at the 1% level, i.e., the model is statistically stable. Moreover, a significant ETC t−1 implies causality from GDP, PD, UR, and DC to NPLs. This result suggests that the adjustment to the long-run equilibrium is slow. In fact, the imbalance caused in the previous period (quarter in our case), converges to long-run equilibrium in the current quarter only partially (11%). The slow adjustment to equilibrium allows policymakers to (quickly) intervene to constrain adverse effects on the real economy. The magnitude of the ETC t−1 coefficient is in agreement with the work of Rinaldi and Sanchis-Arellano (2006). The authors, by a Cointegration Panel analysis for seven Eurozone countries from 1989 to 2004, find a error correction term of 9% value.
To assess the stability of the short/long-run relationship between NPLs and macroeconomics factors, we compute the CUSUM and CUSUM-squared analysis (Brown et al. 1975). The tests are based on residual of the ARDL estimations. The CUSUM test is based on the cumulative sum of recursive residuals. Specifically, the test is based on the first set of n observations, and it is recursively updated and plotted against the breakpoints. The interpretation is straightforward. If the graph of the CUSUM statistic remains within the 5% significance level, then the estimates are stable. The CUSUM-squared test, on the other hand, relies on squared recursive residuals. Figure 2, shows the CUSUM and CUSUMsquared statistics, respectively. As we can observe, the blue line (the value of the tests) remains within the critical limits (red dashed line). The result suggests that there are no evidence of statistically significant breaks (structural instability), namely, our model is stable.

Discussion of the Results
Since the financial crisis of 2007, non-performing loans have become an increasingly popular term. In fact, as a result of recent financial crises (the US and Eurozone Sovereign debt crises), the quality of banks' loan portfolios in all countries of the world has substantially changed (worsened). The reduction of output, high unemployment, lower liquidity of households and enterprises, lower consumption, and lower-income has given rise to so-called impaired debts (NPLs).
After the US financial and Eurozone sovereign debt crises, NPLs are in the spotlight of regulators and banks, as high levels of impaired loans are symptoms of banking crises (Bijsterbosch and Falagiarda 2015;. In fact, the share of NPLs is considered an indicator of credit risk, and the macroeconomic conditions play a key role in their dynamic. Indeed, as the literature has well shown (Anastasiou et al. 2016;Ghosh 2015;Konstantakis et al. 2016;Louzis et al. 2012;Makri et al. 2014;Rinaldi and Sanchis-Arellano 2006), there is a vicious circle between the real economy and NPLs. On the one hand (from the real economy to NPLs), the lower output will cause a reduction in income, therefore a reduction in the ability to repay debt. On the other hand (from NPLs to the real economy), the pattern of NPLs will influence the credit supply channel. For example, the increase in uncertainty about the bank's capital (access to finance) will increase the risk premium required, and this raises interest rates. This will can result in a credit crunch (Anastasiou et al. 2019;Ari et al. 2021). Therefore, the positive correlation between the level of impaired loans and the supply of credit will cause by a deterioration in economic conditions that acted simultaneously on three finance actors: banks, households, and firms.
Our results are in perfect agreement with such relational dynamics between economic conditions and NPLs. The ARDL model found that macroeconomic factors play a crucial role in the dynamics of impaired loans in Italy, broadly agreeing with the relevant literature. In particular, our research suggests (both in the short and long-run) a negative relationship between GDP and an increase in NPLs and between public debt and NPLs. Unemployment and credit to the private sector are positively correlated with an increase in the NPL ratio. We find evidence of the "gamble for resurrection" approach (Angelini 2018). High levels of NPLs could create a "risk shifting" incentive for banks to invest in riskier projects. Banks will tend to support so-called "zombie firms" (Acharya et al. 2020;Caballero et al. 2008;Gandrud and Hallerberg 2017;Laeven and Valencia 2018), namely, banks will not be able to lend to healthy businesses (households). As a result, poor credit allocation management will generate negative consequences for economic growth.
In the Italian context, we can see that non-performing loans have substantially decreased during the last years. This reduction derives from improved general economic conditions and the effects of government measures to support businesses and households (moratoria, debt guarantees, subsidies, contributions, and salary increases) 6 . In the current pandemic context, the impact of the crisis triggered by the spread of COVID-19 on future credit quality is difficult to assess. However, a desirable recommendation would be to promote the proactive management of NPLs. Accordingly to Haynes et al. (2021), to avoid zombie loans, policymakers should ensure that banks assess the current values of loans as correctly as possible. This control can be achieved with effective asset quality reviews (AQRs), stress tests, and the new IFRS-9 standard. Our results suggest that macroprudential policies can play a significant role in preventing NPL problems (Ari et al. 2021).
For example, a monetary policies to curb high credit growth and limit risk-taking by banks would be desirable.
The empirical analysis conducted allows regulators to determine how the macroeconomic environment impacts the dynamics of impaired loans. Our paper provides evidence of the interconnections between NPLs, and the real economy. Hence, a better understanding of individual factors can prevent an increase in credit risk, and thus reduce negative feedback between the Italian banking sector and the real economy.

Conclusions
In this work, we investigated the relationship between NPLs and the macroeconomic environment in the Italian context in the period 2008-2020. For this purpose, we performed an ARDL cointegration model analysis that shows how the GDP, the public debt, unemployment, and domestic credit, has a short and long-run impact on NPLs. Specifically, we find that GPD and Public Debt have a strong (negative) impact on the level of NPLs. Further, the empirical model suggests that the unemployment rate and the credit to the private sector positively impact NPLs. The positive effect of domestic credit testifies how Italian banks support so-called zombie companies.
The main limitation of this study relates to data availability, both from a temporal (historical data) and sectoral perspective. Therefore, there are several ways in which the present study could be extended. For instance, one could investigate the relationship further using new econometric techniques at different time frequencies (e.g., the MIDAS model). This would allow financial market variables (e.g., stock price, VaR, VIX, term-spread) to be included in the analysis at the daily level. For example, by applying a quantile ARDL model (Guo et al. 2021), we can explore the quantile-specific short-and long-term impacts of macro variables on NPLs. In addition, it would be interesting to study the dynamics of NPLs by separating the different sectors of the financial system (banks, insurance companies, shadow-banking).
Funding: This research received no external funding.

Data Availability Statement:
The data presented in this study are available on request from the corresponding author.
Acknowledgments: I gratefully acknowledge Eliana Angelini, Elisa di Febo, and Alessandra Ortolano (the Co-Guest Editors in the special issue), for giving me the opportunity to publish this research in their special issue. I thank the five anonymous referees for their helpful suggestions and comments. I would also like to thank L.C. for inspiring me for this work. Any errors and shortcomings remain the author's responsibility.

Conflicts of Interest:
The author declares no conflict of interest.

Appendix A Appendix A.1. Regression Results with Breaks
In this section, we perform the ARDL cointegration model with structural breaks. For this purpose, we use the Bai and Perron (2003) test. Table A1 reports the results, indicating three specific breaks. Therefore, we include them in our estimation, building a dummy series variable. A dummy variable (dummy) is introduced in our framework to represent the breakpoint in series, where takes the value 1 at breaks (otherwise zero).
In Tables A2 and A3, we shows the ARDL estimation with breaks. As we can note, the findings are qualitative, the same as the ARDL model without breaks. The estimated explanatory variables remain consistent with previous findings, which confirms the robustness of the main results (Tables 4 and 5). Also, as we can observe, the results of the long-run and short-run estimates indicate that the coefficient of the dummy variable is not significant. This result indicates that none of the breaks are strong enough to impact the dynamics of NPLs in both the short and long run. This result is further confirmed by the CUSUM test (Figure 2). During the 2009-2010 years, the bank obtained a first recapitalization by the government in the form of 1.9 billion euros in bonds purchased by the government, namely the "Tremonti bonds" (Gandrud and Hallerberg 2017). 6 Speech by the Governor of the Bank of Italy Ignazio Visco at Italian Banking Association, Executive Committee Meeting Rome, 16 September 2020 (https://www.bancaditalia.it/pubblicazioni/interventi-governatore/integov2020/en-Visco-ABI-16092020 .pdf?language_id=1, accessed on 1 December 2021).