Predicting recessions with a frontier measure of output gap: an application to Italian economy

Abstract Despite the long and great history, developed institutions, high level of physical human capital, Italian economy has been fairly stagnant during last three decades. In this paper, we merge two streams literature: nonparametric methods to estimate frontier efficiency an economy, which allows us develop a new measure output gap, probability economic recession. To illustrate framework, use quarterly data for Italy from 1995 2019 find that our model, using either or linear probit is able provide useful insights.