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The last fifteen years of stagnation in Italy: A Business Cycle Accounting Perspective

In this paper, we investigate possible sources of declining economic growth performance in Italy starting around the middle of the ’90s. A long-run data analysis suggests that the poor performance of the Italian economy cannot be ascribed to an unfortunate business cycle contingency. The rest of the euro area countries have shown better performance, and the macroeconomic data show that the Italian economy has not grown as rapidly as these other European economies. We investigate the sources of economic fluctuations in Italy by applying the Business Cycle Accounting procedure introduced by Chari, Kehoe and McGrattan (2007). We analyze the relative importance of efficiency, labor, investment and government wedges for business cycles in Italy over the 1982-2008 period. We find that different wedges have played different roles during the period, but the efficiency wedge is revealed to be the main factor responsible for the stagnation phase beginning around 1995. Our findings also show that the improvement in labor market distortions that occurred in Italy during the ’90s provided an alleviating effect, preventing an even stronger slowdown in per capita output growth.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 707.

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Date of creation: Jun 2010
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Handle: RePEc:bol:bodewp:707
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  1. Ian Dew-Becker & Robert J. Gordon, 2012. "The Role of Labor-Market Changes in the Slowdown of European Productivity," Review of Economics and Institutions, Università di Perugia, vol. 3(2).
  2. V V Chari & Patrick J Kehoe & Ellen R. McGrattan, 2003. "Business Cycle Accounting," Levine's Bibliography 506439000000000421, UCLA Department of Economics.
  3. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  4. Bart van Ark & Mary O'Mahoney & Marcel P. Timmer, 2008. "The Productivity Gap between Europe and the United States: Trends and Causes," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 25-44, Winter.
  5. Cceilia Iona Lasino & Giovanna Vallanti, 2011. "Reforms, labour market functioning and productivity dynamics: a sectoral analysis for Italy," Working Papers LuissLab 1193, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  6. Stefano Fachin & Andrea Gavosto, 2010. "Trends of labour productivity in Italy: a study with panel co-integration methods," International Journal of Manpower, Emerald Group Publishing, vol. 31(7), pages 755-769, November.
  7. Alan Ahearne & Finn Kydland & Mark A. Wynne, 2006. "Ireland’s Great Depression," The Economic and Social Review, Economic and Social Studies, vol. 37(2), pages 215-243.
  8. Alexander Kondeas & Steven Caudill & Daniel Gropper & Jennie Raymond, 2008. "Deregulation and productivity changes in banking: evidence from European unification," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 4(3), pages 193-197.
  9. F. Daveri & C. Jona-Lasinio, 2006. "Italy’s decline: getting the facts right," Economics Department Working Papers 2006-EP01, Department of Economics, Parma University (Italy).
  10. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  11. Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
  12. Olivier Blanchard, 2004. "The Economic Future of Europe," NBER Working Papers 10310, National Bureau of Economic Research, Inc.
  13. Tito Boeri & Pietro Garibaldi, 2007. "Two Tier Reforms of Employment Protection: a Honeymoon Effect?," Economic Journal, Royal Economic Society, vol. 117(521), pages 357-385, 06.
  14. cipollone piero & Anita Guelfi, 2006. "The value of flexible contracts; evidence from an italian panel of industrial firms," Temi di discussione (Economic working papers) 583, Bank of Italy, Economic Research and International Relations Area.
  15. Giovanni Ferri & Carlo Cottarelli & Andrea Generale, 1995. "Bank Lending Rates and Financial Structure in Italy; A Case Study," IMF Working Papers 95/38, International Monetary Fund.
  16. Erasmus Kristoffer Kersting, 2008. "The 1980s Recession in the UK: A Business Cycle Accounting Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 179-191, January.
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