Having a timely estimation of the cyclical conditions of the economy has always been crucial for economic policy. The paper investigates the ability of certain credit variables to identify the turning points of the Italian business cycle by estimating the recession probabilities in real time and on a monthly basis.
A strong relationship between business and credit cycle emerges. The model relying on credit variables is compared to a benchmark in which industrial production is the only explanatory variable of the business cycle. The credit model proves better than the benchmark at estimating the recession probabilities in real time during the global financial crisis, in the second part of the sovereign debt crisis (in 2013) and during the recovery (2015-2016).
Published in 2021 in: The Manchester School, v. 89, 51, pp. 76-96
