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Macroeconomic Modelling and the Effects of Policy Reforms: An Assessment For Italy Using Item and Quest

Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 1

36 Pages Posted: 28 Feb 2011  

Barbara Annicchiarico

University of Rome, Tor Vergata - Department of Economics and Finance

Fabio Di Dio

Sogei S.p.a.

Francesco Felici

Government of the Italian Republic (Italy) - Ministry of Economy and Finance - Department of the Treasury

Francesco Nucci

University of Rome I

Date Written: January 3, 2011

Abstract

In this paper we compare the dynamic properties of the Italian Treasury Econometric Model (ITEM) with those of QUEST III, the endogenous growth model of the European Commission (DG ECFIN) in the version calibrated for Italy. We consider an array of shocks often examined in policy simulations and investigate their implications on macro variables. In doing so, we analyse the main transmission channels in the two models and provide a comparative assessment of the magnitude and the persistence of the effects, trying to ascertain whether the responses to shocks are consistent with the predictions of economic theory. We show that, despite substantial differences between the two models, the responses of the key variables are qualitatively similar when we consider competition enhancing policies and labour productivity improvements. On the other hand, we observe quantitative disparities between the two models, mainly due to the forward-looking behaviour and the endogenous growth mechanism incorporated into the QUEST model but not in ITEM. The simulation results show that Quest III is a powerful tool to capture the effects of structural economic reforms, like competition-enhancing policies or innovation-promoting policies. On the other hand, owing to the breakdown of fiscal variables in a large number of components, ITEM is arguably more suitable for the quantitative evaluation of fiscal policy and the study of the impact of reforms on the public sector E10, Cbalance sheet.

Keywords: Economic Modelling, DSGE, Structural Reforms, Italy

JEL Classification: E10, C50, E60

Suggested Citation

Annicchiarico, Barbara and Di Dio, Fabio and Felici, Francesco and Nucci, Francesco, Macroeconomic Modelling and the Effects of Policy Reforms: An Assessment For Italy Using Item and Quest (January 3, 2011). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 1. Available at SSRN: https://ssrn.com/abstract=1769586

Barbara Annicchiarico (Contact Author)

University of Rome, Tor Vergata - Department of Economics and Finance ( email )

Rome, I-00133
Italy

Fabio Di Dio

Sogei S.p.a. ( email )

Via Mario Carucci n. 99 e 85
Roma, 00143
Italy
+39068544 9092 (Phone)

Francesco Felici

Government of the Italian Republic (Italy) - Ministry of Economy and Finance - Department of the Treasury ( email )

Via XX Settembre, 97
Rome, 00187
Italy
00390647614197 (Phone)

Francesco Nucci

University of Rome I ( email )

Piazzale Aldo Moro
Rome, 00185
Italy
+39 06 4991 0847 (Phone)
+39 06 445 3246 (Fax)

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