Italy in the Eurozone

Arbeitspapier

Using a DSGE model with nominal wage rigidity, we investigate two scenarios for the Italian economy. The first considers sustained policy commitment to reform. The results indicate the possibility of ‘growing out of bad initial conditions’, if fiscal consolidation is combined with a program for bank recovery and for competitiveness and growth. The second scenario involves a strong asymmetric recession. It is likely to be very severe under the restrictions of the currency union. A benign exit from the Eurozone with stable investor expectations could substantially dampen the short-run impact. Stabilization is achieved by monetary expansion, combined with exchange rate depreciation. However, investor panic may lead to escalation. Capital market reactions would offset the benefits of monetary autonomy and much delay the recovery.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8416

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Financial Markets and the Macroeconomy ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; International Finance: General ; Financial Aspects of Economic Integration ; Macroeconomic Issues of Monetary Unions ; International Financial Markets ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Italy ; competitiveness ; sovereign debt ; bad loans ; bank recapitalization ; European crisis

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Keuschnigg, Christian ; Kirschner, Linda ; Kogler, Michael ; Winterberg, Hannah
• Event: Veröffentlichung
• (who): Center for Economic Studies and Ifo Institute (CESifo)
• (where): Munich
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/223488
• Last update: 10.03.2025, 11:43 AM CET