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An Indicator of Economic Sentiment for the Italian Economy

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Author Info
Giancarlo Bruno (ISAE - Institute for Studies and Economic Analyses)
Marco Malgarini () (ISAE - Institute for Studies and Economic Analyses)

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Abstract

The long and sustained expansion of the nineties has generated, especially in the US, widespread rumours about the “death of the cycle”. Nevertheless, towards the end of the last decade, it became clear that fluctuations of economic activity were far from being extinct. This has contributed greatly to a renewed interest among economists for the elaboration of statistical indicators capable of tracking and, if possible, anticipating the cyclical features of the economy. The aim of this paper is to build such an aggregate composite indicator for the Italian Economy, based on the ISAE surveys on households and those on the manufacturing, retail and construction sector. The first step of the analysis consists in using a dynamic factor model to extract a “common factor” from the different series of each survey, which may be interpreted as a composite confidence indicator. We then evaluate, for each survey, its in-sample and out-of sample properties, comparing them with those of the usual ISAE-EC Confidence indicators. Finally, we use again the dynamic factor model to build, from the sectoral Composite Indicator (CI), a Composite Aggregate Indicator (CAI) for the Italian economy, and test its ability in tracking the cyclical features of Italian aggregate GDP.

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Publisher Info
Paper provided by ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY) in its series ISAE Working Papers with number 28.

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Length: 40 pages
Date of creation: Oct 2002
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Handle: RePEc:isa:wpaper:28

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Related research
Keywords: Confidence Indicators; Leading Indicators; Cyclical Analysis;

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Find related papers by JEL classification:
C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Harvey, Andrew, 2001. "Testing in Unobserved Components Models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(1), pages 1-19, January.
  2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May. [Downloadable!] (restricted)
    Other versions:
  3. The Directorate-General for Economic and Financial Affairs., 2001. "Evaluation and Development of Confidence Indicators Based on Harmonised Business Consumer Surveys," European Economy - Economic Papers 151, Commission of the EC, Directorate-General for Economic and Financial Affairs (DG ECFIN).
  4. Altissimo, F. & Marchetti, D.J. & Oneto, G.P., 2000. "The Italian Business Cycle: Coincident and Leading Indicators and Some Stylized Facts," Papers 377, Banca Italia - Servizio di Studi.
  5. Forni, Mario & Reichlin, Lucrezia, 1995. "Let's Get Real: A Dynamic Factor Analytical Approach to Disaggregated Business Cycle," CEPR Discussion Papers 1244, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Filippo Altissimo & Domenico J. Marchetti & Gian Paolo Oneto, 2000. "The Italian Business Cycle; Coincident and Leading Indicators and Some Stylized Facts," Temi di discussione (Economic working papers) 377, Bank of Italy, Economic Research Department. [Downloadable!]
  8. Nyblom, Jukka & Harvey, Andrew, 2000. "Tests Of Common Stochastic Trends," Econometric Theory, Cambridge University Press, vol. 16(02), pages 176-199, April. [Downloadable!]
    Other versions:
  9. Brunello, Giorgio & Lupi, Claudio & Ordine, Patrizia, 2000. "Regional Disparities and the Italian NAIRU," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 146-77, January.
  10. Harding, Don & Pagan, Adrian, 2001. "Extracting, Using and Analysing Cyclical Information," MPRA Paper 15, University Library of Munich, Germany. [Downloadable!]
  11. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178. [Downloadable!] (restricted)
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  12. Filippo Altissimo & Domenico J. Marchetti & Gian Paolo Oneto, 2000. "The Italian Business Cycle: Coincident and Leading Indicators and Some Stylized Facts," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 59(2), pages 147-220, September.
  13. Christophe Croux & Mario Forni & Lucrezia Reichlin, 2001. "A Measure Of Comovement For Economic Variables: Theory And Empirics," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 232-241, May. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hansson, Jesper & Jansson, Per & Löf, Mårten, 2003. "Business Survey Data: Do They Help in Forecasting the Macro Economy?," Working Paper Series 151, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
    Other versions:
  2. Marco Malgarini & Patrizia Margani & Bianca Maria Martelli, 2005. "Re-engineering the ISAE manufacturing survey," ISAE Working Papers 47, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
  3. Goggin, Jean, 2008. "An Analysis of the Potential of the European Commission Business and Consumer Surveys for Macroeconomic Forecasting," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2008(4-Winter), pages 46-67. [Downloadable!]
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