Financial Conditions and 'Growth at Risk' in Italy
Posted: 4 Sep 2019
Date Written: September 4, 2019
This paper studies the relation 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 relation for out-of-sample forecasting is not trivial. The models anticipate to some extent 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 of, an articulated and diversified systemic risk assessment framework.
Keywords: financial conditions, quantile regression, growth risk
JEL Classification: C21, E37
Suggested Citation: Suggested Citation