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Predicting recessions with a frontier measure of output gap: an application to Italian economy

Author

Listed:
  • Mastromarco, Camilla
  • Simar, Léopold

    (Université catholique de Louvain, LIDAM/ISBA, Belgium)

  • Zelenyuk, Valentin

Abstract

Despite the long and great history, developed institutions, and high level of physical and human capital, the Italian economy has been fairly stagnant during the last three decades. In this paper, we merge two streams of literature: nonparametric methods to estimate frontier efficiency of an economy, which allows us to develop a new measure of output gap, and nonparametric methods to estimate probability of an economic recession. To illustrate the new framework, we use quarterly data for Italy from 1995 to 2019 and find that our model, using either nonparametric or the linear probit model, is able to provide useful insights.

Suggested Citation

  • Mastromarco, Camilla & Simar, Léopold & Zelenyuk, Valentin, 2021. "Predicting recessions with a frontier measure of output gap: an application to Italian economy," LIDAM Reprints ISBA 2021010, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    • Handle: RePEc:aiz:louvar:2021010
    DOI: https://doi.org/10.1007/s00181-021-02029-z
    Note: In: Empirical Economics, Vol. 60, p. 2701–2740 (2021)
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    Cited by:

    1. Filip Bašić & Tomislav Globan, 2023. "Early bird catches the worm: finding the most effective early warning indicators of recessions," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 36(1), pages 2120040-212, December.
    2. Subal C. Kumbhakarⓡ & Emir Malikovⓡ & Christopher F. Parmeterⓡ, 2021. "Applications of efficiency and productivity analysis: editors’ introduction," Empirical Economics, Springer, vol. 60(6), pages 2657-2663, June.

    More about this item

    Keywords

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    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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