The effects of monetary policy on gross domestic product, investment and inflation: an analysis of Italian regional heterogeneity

Sara Cecchetti (), Valter Di Giacinto (), Francesco Montaruli () and Alessandro Montino ()
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Sara Cecchetti: Bank of Italy
Valter Di Giacinto: Bank of Italy
Francesco Montaruli: Bank of Italy
Alessandro Montino: Bank of Italy

No 961, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper analyzes the impact of the ECB's monetary policy on Italian regional economies and seeks to identify and explain the heterogeneous effects across regions by focusing on gross domestic product, investment, and inflation. The approach is empirical and involves two stages. First, we estimate impulse response functions at regional level and test for the presence of heterogeneity. Second, we explore the underlying drivers of heterogeneity using synthetic indicators that capture the key structural characteristics of local industrial and banking systems. The analysis uncovers statistically significant heterogeneity. Furthermore, a substantial share of the variance in the responses is explained by differences in the strength of regional industrial structures. The financial fragility of firms and the share of small banks in local credit systems also contribute to explaining the observed heterogeneity, albeit to a lesser extent.

Keywords: monetary policy shocks; regional heterogeneity; GDP; investment; inflation; local projections (search for similar items in EconPapers)
JEL-codes: C22 C58 E31 E44 G12 (search for similar items in EconPapers)
Date: 2025-09
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_961_25

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