Using credit variables to date business cycle and to estimate the probabilities of recession in real time

Valentina Aprigliano and Danilo Liberati

No 1229, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Following the debate on the relationship between business and financial cycle rekindled in the last decade since the global financial crisis, we assess the ability of some financial indicators to track the Italian business cycle. We mostly use credit variables to detect the turning points and to estimate the probability of recession in real time. A dynamic factor model with Markov-switching regimes is used to handle a large dataset and to cope with the nonlinear evolution of the business cycle. The in-sample results strongly support the capacity of credit variables to estimate the probability of recessions and the implied coincident indicator proves their ability to fit the business cycle. Also in real time the contribution of credit is not negligible compared to that of the industrial production, currently used for the conjunctural analysis.

Keywords: business cycle; financial cycle; real time estimation; Markow-switching model; state-space model (search for similar items in EconPapers)
JEL-codes: C53 E17 E32 E44 G21 (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fdg and nep-mac
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Related works:
Journal Article: Using Credit Variables to Date Business Cycle and to Estimate the Probabilities of Recession in Real Time (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1229_19

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