A stochastic estimated version of the Italian dynamic General Equilibrium Model

Nicola Acocella (), Elton Beqiraj, Giovanni Di Bartolomeo (), Marco Di Pietro (), Francesco Felici, Giorgio Alleva, Fabio Di Dio () and Brunero Liseo

Economic Modelling, 2020, vol. 92, issue C, 339-357

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.

Keywords: Bayesian estimation; Medium scale DSGE model; Fiscal tools (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:92:y:2020:i:c:p:339-357

DOI: 10.1016/j.econmod.2020.01.014

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