Withdrawal of Italy from the euro area: Stochastic simulations of a structural macroeconometric model
Alberto Bagnai (),
Brigitte Granville () and
Christian Alexander Mongeau Ospina
Economic Modelling, 2017, vol. 64, issue C, 524-538
This paper assesses the impact on the Italian economy of Italy withdrawing from the euro area by means of stochastic simulations of a macroeconometric model. The model considers the effect of devaluation on output, sovereign debt valuation, and the development of bilateral economic relations between Italy and its major trade partners. The simulation results are consistent with the findings of recent applied research: the Italian economy would follow the V-shaped pattern observed in most currency crises. After an initial period of stress, and provided an appropriate set of countercyclical policy measures is implemented, real GDP would recover and resume growth at a reasonable pace. In particular, while the expected positive impact of nominal exchange rate realignment on external balance would be transitory, higher nominal growth would bring about a persistent reduction in unemployment and the public debt-to-GDP ratio. These results are robust to a set of sensitivity checks, considering a number of adverse circumstances such as exchange rate overshooting, financial panic, supply-side constraints, and the application of retaliatory tariffs.
Keywords: F15; F31; F32; F34; F45; H63; Economic integration; Foreign exchange; Monetary union; Sovereign debt (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:64:y:2017:i:c:p:524-538
Access Statistics for this article
Economic Modelling is currently edited by S. Hall and P. Pauly
More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().