Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223488
Authors: 
Keuschnigg, Christian
Kirschner, Linda
Kogler, Michael
Winterberg, Hannah
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8416
Abstract: 
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.
Subjects: 
Italy
competitiveness
sovereign debt
bad loans
bank recapitalization
European crisis
JEL: 
E42
E44
E60
F30
F36
F45
G15
G21
Document Type: 
Working Paper

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