Ricerc@Sapienza

This paper presents novel estimates for the cyclically-adjusted primary balance for 18 countries of theEuro area over years 1999–2017. We improve the methodology adopted by the European Commission byusing quarterly rather than annual frequency data and providing accurate identification of the budgetary itemswhose response can be considered automatic to the economic cycle. This disaggregated outcome combinedwith high frequency data marks a significant improvement with respect to previous studies.

The fall in the US labor force participation during the Great Recession stands in sharp contrast with its parallel increase in the euro area. In addition to structural forces, cyclical factors are also shown to account for these patterns, with the participation rate being procyclical in the US since the inception of the crisis and countercyclical in the euro area. We rationalize these diverging developments by using a general equilibrium business cycle model, which nests the endogenous participation decisions into a search and matching framework.

To analyse the macroeconomic dynamics in the Italian economy in the post-2007 period we conduct a counterfactual analysis using the econometric model of the Italian Treasury (ITEM). This allows us to assess on quantitative grounds the relevance of the different channels of the post-2007 recessions and to appraise how well the model performed in tracking the observed developments after 2007. We find that the forecasts errors over the horizon 2008–2014 mostly reflect the assumptions on the path of the exogenous variables made before the crisis erupted.