Credit variables accurately predict recessions, revolutionizing real-time economic forecasting.
The article explores how credit variables can help predict economic recessions in Italy. By analyzing a large dataset using a dynamic factor model, the researchers found that credit indicators are effective in estimating the likelihood of a recession in real time. These indicators are shown to be as important as industrial production data traditionally used for this analysis. This study highlights the potential of credit variables in tracking the business cycle and forecasting economic downturns.