Assessing Financial Stability Risks from the Real Estate Market in Italy: An Update
19 Pages Posted: 7 Aug 2019
Date Written: April 29, 2019
We provide an update of the analytical framework to assess financial stability risks arising from the real estate sector in Italy. The enhancement concerns the definition of a new vulnerability indicator, measured in terms of the flow of total non-performing loans (NPLs) and not, as done previously, in terms of bad loans only. We focus separately on households (as an approximation for residential real estate, RRE) and on firms engaged in construction, management and investment services in the real estate sector (as an approximation for commercial real estate, CRE).
Two early warning models are estimated using the new vulnerability indicator for RRE and CRE, respectively, as dependent variable. Both models exhibit good forecasting performances: the median predictions fit well the new vulnerability indicators in out-of-sample forecasts. Overall, models’ projections indicate that potential risks for banks stemming from the real estate sector will remain contained in the next few quarters.
Keywords: real estate markets, early warning models, bayesian model averaging, banking crises
JEL Classification: C52, E58, G21
Suggested Citation: Suggested Citation