Real and financial cycles: estimates using unobserved component models for the Italian economy

In this paper we examine the empirical features of both the business and the financial cycle in Italy. We employ univariate and multivariate trend-cycle decompositions based on unobserved component models. Univariate estimates highlight different cyclical properties (persistence, duration and amplitude) of real GDP and real credit to the private sector. Multivariate estimates uncover the presence of feedback effects between the real and the financial cycle. In addition, in the most recent period (2015–2016) the multivariate approach highlights a wider output gap than that estimated by the univariate models considered in this paper.

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