Research Topics

Starting from the seminal works of Wynne Godley (1999; Godley and Lavoie 2005, 2007a, 2007b), the literature adopting stock-flow consistent (SFC) models for two or more countries has been flourishing, showing that consistently taking into account real and financial markets of two open economies will generate different results with respect to more traditional open economy models. However, few contributions, if any, have modeled two regions in the same country, and our paper aims at filling this gap. When considering a regional context, most of the adjustment mechanisms at work in open economy models—such as exchange rate movements, or changes in interest on public debt—are simply not present, as they are controlled by "external” authorities. So, what are the adjustment mechanisms at work?
 
To answer this question, we adapt the framework suggested in Godley and Lavoie (2007a) to consider two regions that share the same monetary, fiscal, and exchange rate policies. We loosely calibrate our model to Italian data, where the South (Mezzogiorno) has both a lower level of real income per capita and a lower growth rate than the North. We also introduce a fragmented labor market, as discouraged workers in the South will move North in hopes of finding commuting jobs.
 
Our model replicates some key features of the Italian economy and sheds light on the interactions between financial and real markets in regional economies with “current account” imbalances.

Italy was the first European country to be impacted by COVID-19, rapidly overwhelming healthcare facilities in some areas and prompting the government to shut down nonessential economic activities, with an inevitable (asymmetric) impact on production and income. Though the gradual reopening of most business activities began in 2020Q3, the extent of the shutdown’s damage is difficult to assess. The current political debate is now focusing on what can be achieved with European funds (in the form of both grants and loans), which should become available beginning in 2021. In this Strategic Analysis, Institute President Dimitri B. Papadimitriou, Research Associate Francesco Zezza, and Research Scholar Gennaro Zezza detail the shutdown’s impact on business activities in Italy, incorporating the planned government intervention with preliminary evidence available through 2020Q3 to evaluate a baseline projection for the Italian economy up to 2022.

This paper assesses the quality of the statistical matching used in the LIMTIP estimates for Italy for 2008 and 2014. The match combines the 2008–9 and 2013–14 Italian Time Use Survey (IT-TUS) with the Italian data collected for the European Survey on Income and Living Conditions (IT-SILC) in 2009 and 2015. After the matching, the analysis of the joint distributions of the variables shows that the quality is good.
 
The preliminary results of the LIMTIP estimates in Italy display widespread time poverty, which translates into significant hidden poverty. The LIMTIP also reveals that the increase in the poverty rate between 2008 and 2014 was even higher that what standard poverty measures report.

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.

While the literature on theoretical macroeconomic models adopting the stock-flow-consistent (SFC) approach is flourishing, few contributions cover the methodology for building a SFC empirical model for a whole country. Most contributions simply try to feed national accounting data into a theoretical model inspired by Wynne Godley and Marc Lavoie (2007), albeit with different degrees of complexity.
 
In this paper we argue instead that the structure of an empirical SFC model should start from a careful analysis of the specificities of a country’s sectoral balance sheets and flow of funds data, given the relevant research question to be addressed. We illustrate our arguments with examples for Greece, Italy, and Ecuador.
 
We also provide some suggestions on how to consistently use the financial and nonfinancial accounts of institutional sectors, showing the link between SFC accounting structures and national accounting rules.

From the very start, the European Monetary Union (EMU) was set up to fail. The host of problems we are now witnessing, from the solvency crises on the periphery to the bank runs in Spain, Greece, and Italy, were built into the very structure of the EMU and its banking system. Policymakers have admittedly responded to these various emergencies with an uninspiring mix of delaying tactics and self-destructive policy blunders, but the most fundamental mistake of all occurred well before the buildup to the current crisis. What we are witnessing today are the results of a design flaw. When individual nations like Greece or Italy joined the EMU, they essentially adopted a foreign currency—the euro—but retained responsibility for their nation’s fiscal policy. This attempted separation of fiscal policy from a sovereign currency is the fatal defect that is tearing the eurozone apart.