Do building permits act as a leading indicator of Italy short-term production in construction?

Abstract

Index of production in construction and building permits are two indica- tors used to describe the short-term evolution of the construction sector. In particular, the former measures the level of activity in terms of the sector output, whereas the latter are meant to anticipate production in construction in the very near future, as they represent the administrative applications to start building activity. Nevertheless, for a number of reasons to be detected, building permits do not always act as a leading indicator of the construction sector short-term performance. To investigate whether there are any leading- lagging relations between these two variables, a descriptive analysis based on cross-correlations has been preliminarily carried out and then supplemented by the application of a VAR (Vector Autoregressive) model, used to analyse Granger causality within a cointegrated system of the two variables.