Predicting Recessions: A New Measure of Output Gap as Predictor

In this paper, we merge two streams of literature: nonparametric methods to estimate frontier efficiency of an economy, which allows us to develop a new measure of output gap, and nonparametric methods to estimate probability of an economic recession. To illustrate the new framework we use quarterly data for Italy from 1995 to 2019, and find that our model, using either nonparametric or the linear probit model is able to provide useful insights