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Debunking the Myth of Southern Profligacy. A DSGE Analysis of Business Cycles in the EMU’s Big Four

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  • Alice, Albonico
  • Roberta, Cardani
  • Patrizio, Tirelli

Abstract

We investigate the drivers of EMU big fours' business cycles in a DSGE model. Our approach allows to disentangle the role of demand and technology shocks, where the latter may generate permanent consequences on national productivity levels. For the years before the financial crisis we cannot find evidence of a demand-driven boom in Spain and Italy relative to what happened in France and Germany. The aftermath of the sovereign bond crisis was characterized by a sequence of adverse permanent technology shocks both in Spain and in Italy. These latter results are consistent with recent theoretical developments that emphasize the adverse supply-side effects of a credit crunch.

Suggested Citation

  • Alice, Albonico & Roberta, Cardani & Patrizio, Tirelli, 2017. "Debunking the Myth of Southern Profligacy. A DSGE Analysis of Business Cycles in the EMU’s Big Four," Working Papers 373, University of Milano-Bicocca, Department of Economics, revised Jan 2018.
    • Handle: RePEc:mib:wpaper:373
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    More about this item

    Keywords

    Asymmetric Euro crisis; two-country DSGE; Bayesian estimation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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