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

Author

Listed:
  • 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.

Suggested Citation

  • Fabio Busetti & Pietro Cova, 2013. "The macroeconomic impact of the sovereign debt crisis: a counterfactual analysis for the Italian economy," Questioni di Economia e Finanza (Occasional Papers) 201, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_201_13
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2013-0201/QEF_201.pdf
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    References listed on IDEAS

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    1. Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2018. "Unconventional Monetary Policy in Theory and in Practice," World Scientific Book Chapters, in: Douglas D Evanoff & George G Kaufman & A G Malliaris (ed.), Innovative Federal Reserve Policies During the Great Financial Crisis, chapter 1, pages 1-36, World Scientific Publishing Co. Pte. Ltd..
    2. 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.
    3. Gabriel Fagan & Julian Morgan (ed.), 2005. "Econometric Models of the Euro-area Central Banks," Books, Edward Elgar Publishing, number 3918.
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    Cited by:

    1. Stefano Neri & Stefano Siviero, 2019. "The non-standard monetary policy measures of the ECB: motivations, effectiveness and risks," Questioni di Economia e Finanza (Occasional Papers) 486, Bank of Italy, Economic Research and International Relations Area.
    2. Fabio Busetti, 2017. "Quantile Aggregation of Density Forecasts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(4), pages 495-512, August.
    3. Busetti, Fabio & Caivano, Michele & Delle Monache, Davide & Pacella, Claudia, 2021. "The time-varying risk of Italian GDP," Economic Modelling, Elsevier, vol. 101(C).
    4. Kovacs, Agnes & Rondinelli, Concetta & Trucchi, Serena, 2021. "Permanent versus transitory income shocks over the business cycle," European Economic Review, Elsevier, vol. 139(C).
    5. Nicoletta Batini & Alessandro Cantelmo & Giovanni Melina & Stefania Villa, 2021. "How loose, how tight? A measure of monetary and fiscal stance for the euro area," Oxford Economic Papers, Oxford University Press, vol. 73(4), pages 1536-1556.
    6. Guido Bulligan & Fabio Busetti & Michele Caivano & Pietro Cova & Davide Fantino & Alberto Locarno & Lisa Rodano, 2017. "The Bank of Italy econometric model: an update of the main equations and model elasticities," Temi di discussione (Economic working papers) 1130, Bank of Italy, Economic Research and International Relations Area.
    7. Alessandro Notarpietro & Lisa Rodano, 2016. "The evolution of bad debts in Italy during the global financial crisis and the sovereign debt crisis: a counterfactual analysis," Questioni di Economia e Finanza (Occasional Papers) 350, Bank of Italy, Economic Research and International Relations Area.
    8. Ugo Albertazzi & Alessandro Notarpietro & Stefano Siviero, 2016. "An inquiry into the determinants of the profitability of Italian banks," Questioni di Economia e Finanza (Occasional Papers) 364, Bank of Italy, Economic Research and International Relations Area.
    9. Andrea Gerali & Alberto Locarno & Alessandro Notarpietro & Massimiliano Pisani, 2015. "Every cloud has a silver lining. The sovereign crisis and Italian potential output," Temi di discussione (Economic working papers) 1010, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Italian economy; european sovereign debt crisis; forecasting and simulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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