Italy in the Eurozone

Christian Keuschnigg, Linda Kirschner, Michael Kogler () and Hannah Winterberg

No 8416, CESifo Working Paper Series from CESifo

Abstract: Using a DSGE model with nominal wage rigidity, we investigate two scenarios for the Italian economy. The first considers sustained policy commitment to reform. The results indicate the possibility of ‘growing out of bad initial conditions’, if fiscal consolidation is combined with a program for bank recovery and for competitiveness and growth. The second scenario involves a strong asymmetric recession. It is likely to be very severe under the restrictions of the currency union. A benign exit from the Eurozone with stable investor expectations could substantially dampen the short-run impact. Stabilization is achieved by monetary expansion, combined with exchange rate depreciation. However, investor panic may lead to escalation. Capital market reactions would offset the benefits of monetary autonomy and much delay the recovery.

Keywords: Italy; competitiveness; sovereign debt; bad loans; bank recapitalization; European crisis (search for similar items in EconPapers)
JEL-codes: E42 E44 E60 F30 F36 F45 G15 G21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-dge and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp8416.pdf (application/pdf)

Related works:
Working Paper: Italy in the Eurozone (2020)
Working Paper: Italy in the Eurozone (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8416

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().