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

Author

Listed:
  • Sara Cecchetti

    (Bank of Italy)

  • Valter Di Giacinto

    (Bank of Italy)

  • Francesco Montaruli

    (Bank of Italy)

  • Alessandro Montino

    (Bank of Italy)

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.

Suggested Citation

  • Sara Cecchetti & Valter Di Giacinto & Francesco Montaruli & Alessandro Montino, 2025. "The effects of monetary policy on gross domestic product, investment and inflation: an analysis of Italian regional heterogeneity," Questioni di Economia e Finanza (Occasional Papers) 961, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_961_25
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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