The Time-varying Risk of Italian GDP

41 Pages Posted: 25 Aug 2020

Date Written: July 28, 2020

Abstract

The uncertainty surrounding economic forecasts is generally related to multiple sources of risks, of domestic and foreign origin. This paper studies the predictive distribution of Italian GDP growth as a function of selected risk indicators, related to both financial and real economic developments. The conditional distribution is characterized by means of expectile regressions. Expectiles are closely related to the Expected Shortfall, a well-known measure of risk with desirable properties. Here a decomposition of Expected Shortfall in terms of contributions of different indicators is proposed, which allows to track over time the main drivers of risk. Our analysis of the predictive distribution of GDP confirms that financial conditions are relevant for the left tail of the distribution but it also highlights that indicators of global trade and uncertainty have strong explanatory power for both left and right tail. Their usefulness is supported also in a pseudo real-time predictive context. Overall, our findings suggest that Italian GDP risks have been mostly driven by foreign developments around the Great Recession, by domestic financial conditions at the time of the Sovereign Debt Crisis and by economic policy uncertainty in more recent years.

Keywords: asymmetric least squares, expectiles, density forecasts, GDP growth, risks

JEL Classification: C53, E17

Suggested Citation

Busetti, Fabio and Caivano, Michele and Delle Monache, Davide and Pacella, Claudia, The Time-varying Risk of Italian GDP (July 28, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1288, Available at SSRN: https://ssrn.com/abstract=3680582 or http://dx.doi.org/10.2139/ssrn.3680582

Fabio Busetti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
39 06 479 23245 (Phone)
39 06 474 7820 (Fax)

Michele Caivano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Davide Delle Monache (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Claudia Pacella

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
48
Abstract Views
460
PlumX Metrics