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Business cycle synchronization or business cycle transmission? The effect of the German slowdown on the Italian economy

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  • Alessandro Mistretta

    (Bank of Italy)

Abstract

This work analyses the effects of the slowdown that has hit Germany since 2018 on the Italian economy using data from Banca d’Italia’s Survey of Inflation and Growth Expectations. First, we briefly argue that these two economies are highly interconnected and describe the slowdown that has hampered the German economy. Using a difference-in-differences strategy, we show that since 2018, when the German economy weakened, Italian companies’ sentiment and assessment whose sales were oriented towards the German market was comparatively worse than that of other companies. This finding suggests that there is a transmission link between these two economies. Finally, using a forecasting model, we provide a quantification of these effects that finds that it would have been contemporaneous and relevant for GDP, lagging for the total investment. In contrast, we do not find any significant employment effect.

Suggested Citation

  • Alessandro Mistretta, 2021. "Business cycle synchronization or business cycle transmission? The effect of the German slowdown on the Italian economy," Temi di discussione (Economic working papers) 1346, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1346_21
    as

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    File URL: https://www.bancaditalia.it/pubblicazioni/temi-discussione/2021/2021-1346/en_tema_1346.pdf
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    Cited by:

    1. Donato Ceci & Andrea Silvestrini, 2023. "Nowcasting the state of the Italian economy: The role of financial markets," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(7), pages 1569-1593, November.

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    More about this item

    Keywords

    Business cycle; Synchronization; Transmission; Survey;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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