Forecasting economic activity with higher frequency targeted predictors

In this paper we explore the performance of bridge and factor models in forecasting quarterly aggregates in the very short-term subject to a pre-selection of monthly indicators. Starting from a large information set, we select a subset of targeted predictors using data reduction techniques as in Bai and Ng (2008). We then compare a Diffusion Index forecasting model as in Stock and Watson (2002), with a Bridge model specified with an automated General-To-Specific routine. We apply these techniques to forecasting Italian GDP growth and its main components from the demand side and find that Bridge models outperform naive forecasts and compare favorably against factor models. Results for France, Germany, Spain and the euro area confirm these findings.short-term GDP forecast, factor models, bridge models, General To Specific

The performance of the Italian housing market and its effects on the financial system

Developments in the real-estate sector are of crucial importance for the business cycle and financial stability. This study analyses developments in the Italian housing market on the basis of both real and financial variables. Following the sharp contraction of the market during the financial crisis and the more general fall in economic activity, a few signals suggests that the recession in the housing market is easing somewhat. However, the degree of uncertainty remains considerable. In recent months the ratio between the flow of bad debts to total outstanding loans to households and construction firms has reached the highest levels since the beginning of the decade. The paper also investigates three issues of a more structural nature. First, it examines the performance and the regulatory framework of real-estate investment funds in Italy. Second, it analyses the main characteristics of the taxation of residential housing, with reference to ownership, rentals and transactions. Finally, the paper estimates the impact on residential house prices of the growing demand for housing services by immigrants.housing market cycle, transactions, rentals, residential house prices, mortgages, real-estate investment funds, taxation of residential housing

Has the wage Phillips curve changed in the euro area?

Abstract Increasing evidence shows that in the aftermath of the global financial crisis, in the euro area, the relationship between price inflation and economic slack became stronger. Instead, there is no clear evidence of a strong(er) relationship between wage inflation and unemployment. In this paper, we estimate a Phillips curve with time-varying coefficients separately for Italy, Spain, Germany and France and we find that, with the exception of Germany, after the global financial crisis, the sensitivity of hourly wage changes to labour market slack increased. Second, by the use of administrative microdata, available only for Italy, we relate daily wage changes to the local unemployment rate. The results confirm the steepening of the Phillips curve after 2008, also when controlling for composition effects

Forecasting economic activity with targeted predictors

In this paper we explore the forecasting performances of methods based on a pre-selection of monthly indicators from large panels of time series. After a preliminary data reduction step based on different shrinkage techniques, we compare the accuracy of principal components forecasts with that of parsimonious regressions in which further shrinkage is achieved using the General-To-Specific approach. In an empirical application, we show that the two competing models produce accurate current-quarter forecasts of Italian GDP and of its main demand components, outperforming naïve forecasts and comparing favorably with factor models based on all available information. A robustness check conducted on the GDP growth of the euro area and of its major members confirms these results

Housing Cycles In The Major Euro Area Countries

The recent burst of the house price bubble in the United States and its spillover effects on real economies worldwide has rekindled the interest in the role of housing in the business cycle. In this paper, we investigate the relationships between housing cycles among the four major euro area countries (Germany, France, Italy and Spain) over the sample 1980Q1-2008Q4. Our main findings are that GDP cycles show a high degree of comovement across these four countries, reflecting trade linkages, but much weaker ones for housing market cycles, where idiosyncratic factors play a major role. House prices are even less related than quantities across countries. We also find much stronger relationships in the common monetary policy period.Housing cycles, synchronisation measures, euro area countries