Assessing the usefulness of survey‐based data in forecasting firms' capital formation: Evidence from Italy

While there is a vast macroeconomic literature that singles out the main drivers of capital accumulation in advanced economies during and after the global financial and sovereign debt crises' recessionary phase, there is much less research seeking to identify both models and variables that possess out‐of‐sample forecasting ability for gross fixed capital formation. Moreover, micro‐founded variables are scarcely employed in macroeconomic forecasting of real investment. We fill this gap by considering a battery of univariate and multivariate time series models to forecast investment of nonfinancial corporations in Italy, an interesting case study due to its steep downturn during the two aforementioned crises. We find that a vector error correction model augmented with firm survey‐based variables accounting for business confidence, demand uncertainty and financing constraints generally outperforms the autoregressive benchmark, and a series of competing multivariate time series models in various, alternative, evaluation samples that take into account the impact of both the global financial crisis and the sovereign debt crisis on forecast accuracy.