The Transmission of the Global Financial Crisis to the Italian Economy: A Counterfactual Analysis, 2008-2010

The world recession triggered by the financial crisis has impacted with extraordinary violence on economic activity in Italy. What has been the contribution of the various channels through which the crisis was transmitted to the Italian economy? What have been the effects stemming from the reaction of economic policies? To address these questions, our paper makes a counterfactual analysis of the Italian economy over the period 2008-2010, exploring a set of “no-crisis” scenarios. We estimate that the events prompted by the financial turmoil subtracted 6.5 percentage points from economic activity over the period 2008-2010. Specifically, crisis factors curtailed GDP growth by about 10 percentage points, while economic policies and automatic stabilizers mitigated the impact by about 3.5 percentage points. According to our results, the effects of the crisis were mostly “imported from abroad”; the worsening of domestic financing conditions and of the business and household climates played lesser - though not negligible - roles.