The Italian Treasury Econometric Model (ITEM)

Claudio Cicinelli, Andrea Cossio, Francesco Nucci, Ottavio Ricchi and Cristian Tegami

Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: In this paper, we provide a description of the Italian Treasury Econometric Model (ITEM). We illustrate its general structure and model properties, especially with regard to the economy's response to changes in policy and in other dimensions of the economic environment. The model has a quarterly frequency and includes 371 variables. Out of these, 124 are exogenous and 247 endogenous. The model structure features 36 behavioral equations and 211 identities. One of the key features of the model is the joint representation of the economic environment on both the demand and the supply side. Since it is designed for the needs of a Treasury Department, its public finance section is developed in great detail, both on the expenditure and revenue side. It also features a complete modeling of financial assets and liabilities of each institutional sector. After documenting the model structure and the estimation results, we turn to the outcomes of model simulation and ascertain the model properties. In ITEM the shocks that generate permanent effects on output are associated with: a) variation of variables that affect the tax wedge in the labor market and the user cost of capital; b) labor supply change; c) variation in the trend component of TFP (technical progress). By contrast, variables that exert their effects on the demand side have only temporary effects on output. We also perform in-sample dynamic simulation of the model. This allows us to derive simulated values of all the endogenous variables which can be compared with the corresponding actual values. This allows us to appraise, for each aggregate, whether the simulated values track the observed data.

Keywords: Macroeconometric models; Economic Policy (search for similar items in EconPapers)
JEL-codes: C51 C52 E60 (search for similar items in EconPapers)
Pages: 40
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: The Italian Treasury Econometric Model (ITEM) (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:itt:wpaper:wp2008-1

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