A stochastic estimated version of the Italian dynamic General Equilibrium Model |
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| Affiliation: | 1. MEMOTEF Department, Sapienza University of Rome, Italy;2. Italian National Institute of Statistics, Italy;3. Department of Economics and Law, Sapienza University of Rome, Italy;4. Council of the Experts, Italian Ministry of Economy and Finance, Italy;5. European School of Political Economy, Luiss, Rome, Italy;6. Sogei SpA, Italy;7. Department of the Treasury, Italian Ministry of Economy and Finance, Italy;1. Economics Department, University of Girona, Carrer de la Universitat, 10. Campus de Montilivi, 17003 Girona, Spain;2. Applied Economics Department, Autonomous University of Barcelona, 08193, Bellaterra, Barcelona, Spain;1. LAMIDED, University of Sousse, Abdlaaziz il Behi Street, Bp 763, 4000, Sousse, Tunisia;2. Léonard de Vinci Pôle Universitaire, Research Center, 92916, Paris La Défense (France) and IRG, University of Paris-Est, IRG, France;1. Department of Economics, Business and Finance, Mutah University, Karak, Jordan;2. Department of Economic and Statistics Cognetti De Martiis, University of Turin, Department of Economics and Finance, Brunel University London, Lungo Dora Siena 100A, Turin, Italy;1. Banco de Portugal, Portugal;2. Banco de Portugal, Nova SBE, Portugal;1. Qingdao University, Qingdao, 266071, China;2. Shanghai Normal University, Shanghai, 200234, China |
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| Abstract: | This paper aims at identifying the main drivers of the Italian economic cycle. To this end, we estimate a small-open economy model based on a dual labor market, which captures the main features of the Italian economy. Our results indicate that labor market rigidities are important structural features of the Italian economy, but they provide a limited contribution in explaining the business cycle fluctuations. Long-term dynamics are mostly driven by supply factors (productivity and markups). However, demand factors, including monetary and fiscal policies, play a sizeable role in the short run. Policy experiments show that expansionary fiscal policies crowd out private consumption and investment. The paper also contributes to the recent debate on fiscal consolidation. Estimated fiscal multipliers support the view that plans aimed at reducing the public debt should be based on tax increases rather than expenditure cuts. |
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| Keywords: | Bayesian estimation Medium scale DSGE model Fiscal tools |
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