No. 485 - The use of composite indicators in regional business-cycle analysis: an application to the economy of Veneto

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by P. Chiades, M. Gallo and A. Venturini September 2003

This paper analyses the business cycle properties of 150 time series, including real and monetary variables, relevant to the regional economy. Following the methodology adopted by Altissimo, Marchetti and Oneto (2000), we propose new monthly coincident and leading composite indicators for the regional business cycle; the leading indicator anticipates the turning points of the coincident indicator on average by five months. With respect to the Italian indicator, recently proposed by ISAE and Bank of Italy, the regional indicator turns out to be particularly sensitive to the evolution of external conditions, revealing cyclical fluctuations not exhibited by the national one. The chronology confirms the peculiarity of the local economy, characterised by a very long expansion lasting from March 1993 to November 1996, tied to the depreciation of the exchange rate as a consequence of the exit from the EMS, and by two idiosyncratic fluctuations. The first one is a short and pronounced cycle occurred during the period 1990-91, coinciding with the Gulf war and the subsequent short recovery driven by the German fiscal expansion tied to the re-unification process. The second is characterised by the relevant recession occurred between February 1998 and April 1999, following the Asian currency and financial crisis.