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Financial Conditions and 'Growth at Risk' in Italy

Author

Listed:
  • Piergiorgio Alessandri

    (Bank of Italy)

  • Leonardo Del Vecchio

    (Bank of Italy)

  • Arianna Miglietta

    (Bank of Italy)

Abstract

This paper studies the relationship between financial conditions and economic activity in Italy using quantile regression techniques in the spirit of Adrian, Boryachenko and Giannone (2019). We exploit the volatility of the 2008-2012 period to assess the plausibility of ‘tail’ predictions obtained from a broad range of financial indicators. We find that, although spikes in financial distress are typically followed by economic contractions, using this relationship for out-of-sample forecasting is not trivial. To some extent, the models predict the slowdowns experienced by Italy after 2008, but the forecasts are volatile, their quality varies across indicators and horizons, and the predictions tend to overestimate the likelihood of an upcoming recession. As such, these tools represent a complement to, rather than a substitute for, an articulated and diversified systemic risk assessment framework.

Suggested Citation

  • Piergiorgio Alessandri & Leonardo Del Vecchio & Arianna Miglietta, 2019. "Financial Conditions and 'Growth at Risk' in Italy," Temi di discussione (Economic working papers) 1242, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1242_19
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    References listed on IDEAS

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    Cited by:

    1. Gloria Gonzalez-Rivera & Vladimir Rodriguez-Caballero & Esther Ruiz, 2021. "Expecting the unexpected: economic growth under stress," Working Papers 202106, University of California at Riverside, Department of Economics.
    2. Busetti, Fabio & Caivano, Michele & Delle Monache, Davide & Pacella, Claudia, 2021. "The time-varying risk of Italian GDP," Economic Modelling, Elsevier, vol. 101(C).

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    More about this item

    Keywords

    financial conditions; quantile regression; growth risk;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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