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Predicting recessions with a frontier measure of output gap: an application to Italian economy

Camilla Mastromarco (), Leopold Simar () and Valentin Zelenyuk
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Camilla Mastromarco: Universitá della Calabria

Empirical Economics, 2021, vol. 60, issue 6, No 3, 2740 pages

Abstract: Abstract Despite the long and great history, developed institutions, and high level of physical and human capital, the Italian economy has been fairly stagnant during the last three decades. In this paper, we merge two streams of literature: nonparametric methods to estimate frontier efficiency of an economy, which allows us to develop a new measure of output gap, and nonparametric methods to estimate probability of an economic recession. To illustrate the new framework, we use quarterly data for Italy from 1995 to 2019 and find that our model, using either nonparametric or the linear probit model, is able to provide useful insights.

Keywords: Forecasting; Output gap; Robust nonparametric frontier; Generalized nonparametric quasi-likelihood method; Italian recession (search for similar items in EconPapers)
JEL-codes: C13 C14 C32 C5 D24 E37 O4 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s00181-021-02029-z

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