Assessing Financial Stability Risks from the Real Estate Market in Italy: An Update

19 Pages Posted: 7 Aug 2019

Date Written: April 29, 2019

Abstract

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

Ciocchetta, Federica and Cornacchia, Wanda, Assessing Financial Stability Risks from the Real Estate Market in Italy: An Update (April 29, 2019). Bank of Italy Occasional Paper No. 493, April 2019, Available at SSRN: https://ssrn.com/abstract=3433081 or http://dx.doi.org/10.2139/ssrn.3433081

Federica Ciocchetta

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Wanda Cornacchia (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
14
Abstract Views
241
PlumX Metrics