Financial Conditions and 'Growth at Risk' in Italy

Posted: 4 Sep 2019

See all articles by Piergiorgio Alessandri

Piergiorgio Alessandri

Bank of Italy

Leonardo Del Vecchio

Bank of Italy; University of Rome I - Department of Statistical Sciences

Arianna Miglietta

Bank of Italy

Date Written: September 4, 2019

Abstract

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

Alessandri, Piergiorgio and Del Vecchio, Leonardo and Miglietta, Arianna, Financial Conditions and 'Growth at Risk' in Italy (September 4, 2019). Available at SSRN: https://ssrn.com/abstract=3447815

Piergiorgio Alessandri (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Leonardo Del Vecchio

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

University of Rome I - Department of Statistical Sciences ( email )

Piazzale Aldo Moro, 5
Rome, 00185
Italy

Arianna Miglietta

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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