Abstract
To analyse the macroeconomic dynamics in the Italian economy in the post-2007 period we conduct a counterfactual analysis using the econometric model of the Italian Treasury (ITEM). This allows us to assess on quantitative grounds the relevance of the different channels of the post-2007 recessions and to appraise how well the model performed in tracking the observed developments after 2007. We find that the forecasts errors over the horizon 2008–2014 mostly reflect the assumptions on the path of the exogenous variables made before the crisis erupted. We also show that the sharp fall in world demand in 2008–09, the post-2010 worsening of financial conditions in coincidence with the sovereign crisis and the severe post-2010 fiscal contraction account for a large fraction of the observed drop of GDP.
We are especially grateful to Claudio Cicinelli (Sogei) for outstanding technical support throughout the whole project and for useful suggestions. We also thank Riccardo Barbieri and participants at the XXVIII Villa Mondragone International Seminar (2016) for helpful comments. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Ministry of the Economy and Finance.
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Notes
- 1.
See Hall (2011) for an analysis on the developments in the US economy in the post crisis period. In general, as argued convincingly by Blinder (2012), a shared view for all previous episodes of postwar U.S. recessions is that they are driven by contractionary monetary policy and/or by oil shocks. Conversely, the 2007–2009 US recession has been driven by balance-sheet effects of the financial crisis (Reinhart and Rogoff 2009) and/or by the bursting of asset price bubbles (home price and fixed-income) after excessive speculation (Minsky 1992). See also Jordà et al. (2011).
- 2.
Blinder (2012) questions the validity of these conclusions by Stock and Watson (2012). He argues that the novel financial developments experienced before and during the crisis are features that do modify the shape of impulse response functions to shocks (“slope” effects) rather than features that simply modify the levels of the variables’ response (“intercept” effects).
- 3.
The Italian Treasury Econometric Model (ITEM) is the quarterly econometric model of the Italian economy developed and used at the Department of Treasury of the Italian Ministry of the Economy and Finance. ITEM is a medium-size model and is therefore suitable to track and explain the pattern of a considerable number of macroeconomic aggregates (see Cicinelli et al. 2008, 2010 and the appendices therein).
- 4.
See also Busetti and Cova (2013) who show that, compared with a baseline scenario, the cumulative reduction of GDP in 2012–2013 is about 6.5 percentage points.
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Felici, F., Nucci, F., Ricchi, O., Tegami, C. (2017). The Post-2007 Developments in the Italian Economy: A Counterfactual Analysis with the ITEM Model. In: Paganetto, L. (eds) Sustainable Growth in the EU. Springer, Cham. https://doi.org/10.1007/978-3-319-52018-6_7
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DOI: https://doi.org/10.1007/978-3-319-52018-6_7
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