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Synchronization vs. Transmission: The Effect of the German Slowdown on the Italian Business Cycle

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  • Alessandro Mistretta

    (Banca d’Italia)

Abstract

This work studies the transmission of the business cycle across countries by analyzing the effects of the 2018 German slowdown on Italian activity. We apply a difference-indifferences strategy to expectations data from Banca d’Italia’s Survey of Inflation and Growth Expectations (SIGE). Firms exporting to Germany had lower expectations for the Italian economy (sentiment) and for their own demand, investment, and employment (assessment) than firms exporting to other countries or not exporting at all. We quantify the response of key Italian macroeconomic aggregates to worsening sentiment and assessment of Italian firms using a forecasting model. A significant contemporaneous impact on Italian GDP highlights the role of the expectations of firms exposed to foreign markets in transmitting foreign business cycle.

Suggested Citation

  • Alessandro Mistretta, 2025. "Synchronization vs. Transmission: The Effect of the German Slowdown on the Italian Business Cycle," International Journal of Central Banking, International Journal of Central Banking, vol. 21(1), pages 331-386, January.
    • Handle: RePEc:ijc:ijcjou:y:2025:q:1:a:7
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    Cited by:

    1. Donato Ceci & Andrea Silvestrini, 2023. "Nowcasting the state of the Italian economy: The role of financial markets," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(7), pages 1569-1593, November.

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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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