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The Italian Treasury Econometric Model (ITEM)

  • Claudio Cicinelli
  • Andrea Cossio
  • Francesco Nucci
  • Ottavio Ricchi
  • Cristian Tegami

In this paper, we provide a description of the Italian Treasury Econometric Model (ITEM). We illustrate its general structure and model properties, especially with regard to the economy's response to changes in policy and in other dimensions of the economic environment. The model has a quarterly frequency and includes 371 variables. Out of these, 124 are exogenous and 247 endogenous. The model structure features 36 behavioral equations and 211 identities. One of the key features of the model is the joint representation of the economic environment on both the demand and the supply side. Since it is designed for the needs of a Treasury Department, its public finance section is developed in great detail, both on the expenditure and revenue side. It also features a complete modeling of financial assets and liabilities of each institutional sector. After documenting the model structure and the estimation results, we turn to the outcomes of model simulation and ascertain the model properties. In ITEM the shocks that generate permanent effects on output are associated with: a) variation of variables that affect the tax wedge in the labor market and the user cost of capital; b) labor supply change; c) variation in the trend component of TFP (technical progress). By contrast, variables that exert their effects on the demand side have only temporary effects on output. We also perform in-sample dynamic simulation of the model. This allows us to derive simulated values of all the endogenous variables which can be compared with the corresponding actual values. This allows us to appraise, for each aggregate, whether the simulated values track the observed data.

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File URL: http://www.dt.tesoro.it/modules/documenti_en/analisi_progammazione/working_papers/n.-1-2008---The-Italian-Treasury-Econometric-Model----ITEM.pdf
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Paper provided by Department of the Treasury, Ministry of the Economy and of Finance in its series Working Papers with number wp2008-1.

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Handle: RePEc:itt:wpaper:wp2008-1
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  1. Lorenzo Forni & Libero Monteforte & Luca Sessa, 2007. "The general equilibrium effects of fiscal policy: estimates for the euro area," Temi di discussione (Economic working papers) 652, Bank of Italy, Economic Research and International Relations Area.
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  8. Claudio Cicinelli & Andrea Cossio & Francesco Nucci & Ottavio Ricchi & Cristian Tegami, . "The Italian Treasury Econometric Model (ITEM)," Working Papers wp2008-1, Department of the Treasury, Ministry of the Economy and of Finance.
  9. Favero, Carlo A., 2001. "Applied Macroeconometrics," OUP Catalogue, Oxford University Press, number 9780198296850, March.
  10. Spanos, Aris, 1990. "The simultaneous-equations model revisited : Statistical adequacy and identification," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 87-105.
  11. Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 719-51, August.
  12. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
  13. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
  14. Fiorito, Riccardo, 2003. "Inventory changes and the closing of macroeconometric models," International Journal of Production Economics, Elsevier, vol. 81(1), pages 75-84, January.
  15. Agresti, Anna Maria & Mojon, Benoît, 2001. "Some stylised facts on the euro area business cycle," Working Paper Series 0095, European Central Bank.
  16. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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