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The macroeconomic impact of the sovereign debt crisis: a counterfactual analysis for the Italian economy

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  • Fabio Busetti

    ()
    (Bank of Italy)

  • Pietro Cova

    ()
    (Bank of Italy)

Abstract

This work analyzes the macroeconomic impact of the euro-area sovereign debt crisis on the Italian economy by estimating the contribution of the main transmission channels underlying the recessionary dynamics at play since the second half of 2011. By means of a counterfactual analysis undertaken using the Bank of Italy’s quarterly econometric model it is estimated that (i) compared with a “no-crisis scenario”, the GDP loss amounts cumulatively to around 6.5 percentage points in 2012-2013; (ii) the drop in investment stems mainly from a worsening of financing conditions for firms, while the contraction in consumption expenditure hinges chiefly on the negative impact on households’ disposable income of the fiscal measures enacted in response to the crisis, as well as heightened uncertainty and lower confidence levels; and (iii) unlike the 2008-09 recession, during the sovereign debt crisis the major impact on economic activity stems from internal factors, which account for about two thirds of the downturn in GDP.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 201.

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Date of creation: Sep 2013
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Handle: RePEc:bdi:opques:qef_201_13

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Keywords: Italian economy; european sovereign debt crisis; forecasting and simulation;

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  1. Antonio Di Cesare & Giuseppe Grande & Michele Manna & Marco Taboga, 2012. "Recent estimates of sovereign risk premia for euro-area countries," Questioni di Economia e Finanza (Occasional Papers) 128, Bank of Italy, Economic Research and International Relations Area.
  2. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
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