Debunking the Myth of Southern Profligacy. A DSGE Analysis of Business Cycles in the EMU’s Big Four

Alice Albonico, Roberta Cardani and Patrizio Tirelli

No 373, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We investigate the drivers of EMU big fours' business cycles in a DSGE model. Our approach allows to disentangle the role of demand and technology shocks, where the latter may generate permanent consequences on national productivity levels. For the years before the financial crisis we cannot find evidence of a demand-driven boom in Spain and Italy relative to what happened in France and Germany. The aftermath of the sovereign bond crisis was characterized by a sequence of adverse permanent technology shocks both in Spain and in Italy. These latter results are consistent with recent theoretical developments that emphasize the adverse supply-side effects of a credit crunch.

Keywords: Asymmetric Euro crisis; two-country DSGE; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C11 C13 C32 E21 E32 E37 (search for similar items in EconPapers)
Pages: 36
Date: 2017-11-05, Revised 2018-01
New Economics Papers: this item is included in nep-dge, nep-eec, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:373

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