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Economic Activity and Recession Probabilities: information content and predictive power of the term spread in Italy
[journal article]
Abstract The aim of the present paper is to examine the information content of the Italian term spread as for real economic growth rates and recession probabilities and to test its predictive power in forecasting regime probabilities. To this end the relationship between the term spread and economic growth r... view more
The aim of the present paper is to examine the information content of the Italian term spread as for real economic growth rates and recession probabilities and to test its predictive power in forecasting regime probabilities. To this end the relationship between the term spread and economic growth rates is modelled as a nonlinear one and specifically the Logistic Smooth Transition model is used, while a probit model is implemented to forecast recession probabilities. Specific to this paper is the use of the OECD business cycle chronology, which was never used before to this end for the Italian case. Overall evidence supports the informative content of the spread in Italy over the whole period (1984-2005) although results are more satisfactory as from 1992. In particular, recession forecasts are generally better than those obtained with other chronologies previously adopted for the Italian case (ISAE and ECRI).... view less
Document language
English
Publication Year
2009
Page/Pages
p. 2309-2322
Journal
Applied Economics, 41 (2009) 18
DOI
https://doi.org/10.1080/00036840701222512
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)