A Stock-Flow Consistent Quarterly Model of the Italian Economy

Abstract

Macroeconomists and political officers need rigorous, albeit realistic, quantitative models to forecast the future paths and dynamics of some variables of interest while being able to evaluate the effects of alternative scenarios. At the heart of all these models lies a standard macroeconomic module that, depending on the degree of sophistication and the research questions to be answered, represents how the economy works. However, the complete absence of a realistic monetary framework, along with the abstraction of banks and more generally of real-financial interactions-not only in dynamic stochastic general equilibrium (DSGE) models but also in central banks' structural econometric models-made it impossible to detect the rising financial fragility that led to the Great Recession.In this paper, we show how to address the missing links between the real and financial sectors within a post-Keynesian framework, presenting a quarterly stock-flow consistent (SFC) structural model of the Italian economy. We set up the accounting structure of the sectoral transactions, describing our "transaction matrix" and "balance sheet matrix," starting from the appropriate sectoral data sources.We then "close" all sectoral financial accounts, describe portfolio choices, and define the buffer stocks for each class of assets and sector in the model. We describe our estimation strategy, present the main stochastic equations, and, finally, discuss the main channels of transmissions in our model.

Household debt and macroeconomic stability: An empirical stock‐flow consistent model for the Danish economy

“…Furthermore, the export prices are also affected by the domestic unit labor cost (). Our export price equation is in line with several other studies (see, e.g., Onaran and Obst, 2016; Zezza & Zezza, 2020). The export price equation can be expressed as follows:…”

“…Burgess et al (2016) consider a housing market, where mortgage loans are determined by the loan‐to‐value ratio, whereas nominal investment in housing is determined by mortgage demand and house prices. In Zezza and Zezza (2020), the demand for new houses depends on disposable income, real stock of housing, and the interest rate on mortgages. With the exception of Zezza (2008), Zezza and Zezza (2020), and Burgess et al (2016), these models assume that the supply of housing (i.e., construction of new houses) is given.…”

“…In Zezza and Zezza (2020), the demand for new houses depends on disposable income, real stock of housing, and the interest rate on mortgages. With the exception of Zezza (2008), Zezza and Zezza (2020), and Burgess et al (2016), these models assume that the supply of housing (i.e., construction of new houses) is given. Nikiforos and Zezza (2017), in their survey, discuss the role of household debt in SFC models.…”

“…Finally, the interest rate on loans is included to capture the cost of borrowing, which is expected to contribute negatively to the demand for loans. Our equation determining the demand for household loans is in line with Zezza and Zezza (2020).…”

Are EU Policies Effective to Tackle the Covid-19 Crisis? The Case of Italy

“…It is set up by integrating data released by ISTAT and BoI, which allows decomposing the economy with a certain level of detail. Using a pragmatic strategy for the estimation of the behavioural equations, Zezza and Zezza (2020) provide a tool for evaluating different policy scenarios. 2 The model has been recently used for evaluating the latest OECD (2020a, 2020b) projections for Italy, and the economic impact of Covid-19 on the main GDP aggregates (Papadimitriou, Zezza, and Zezza 2020a).…”