Uncertainty shocks deepen Italy's downside production risks
A one-standard-deviation uncertainty shock lowers Italy's adverse-tail industrial production response by 0.7 percent after 15 months, Luca Moller's Bank of Italy research finds. Employment and bank lending also weaken as financial stress rises.
Production bears the heavier burden
Luca Moller's Bank of Italy paper constructs 15 monthly uncertainty measures using surveys, forecast errors, text and market data.
A structural quantile model links innovations in a composite measure to lower production, employment and bank loans and higher financial stress.
Industrial production falls 0.7 percent in the lower tail after 15 months, versus 0.5 percent at the median and 0.4 percent in the upper tail.
Employment and lending responses are milder, more persistent and similar across quantiles.
The model uses March 1991–February 2020 data; extending it through April 2026 gives qualitatively similar short-run real-activity results.
By August 2026, median uncertainty was low again, but dispersion remained high.
Weights follow historical warning power
The composite selects 42 of 85 tested measures, excluding 31 with non-positive average performance and 12 redundant measures correlated at least 0.7 with better performers.
It adds seven short-history subjective measures.
Quantile regressions cover January 1998–October 2025, excluding March 2020–May 2021, at 3-, 12- and 24-month horizons.
Consumer uncertainty about inflation ranks highest; text-based measures often have counterintuitive associations.
These are in-sample historical relationships, not causal estimates or real-time forecasting results.
A dashboard, not a verdict
The paper treats the composite as a monitoring tool, not a substitute for judgement.
Global geoeconomic tensions have translated only partly into domestic uncertainty and adverse tail risks.
Persistent dispersion across components limits any clear-cut reading of the aggregate.