An empirical analysis on the effects of uncertainty in the Italian economy

The economic events of the last fifteen years have been important to stimulate research. After the 2008 US crisis it was clear that the major macroeconomic models failed to explain what the recession’s drivers were. The implementation of standard recovery policies did not produce the expected results, especially in Europe, where the first economic contraction lead to the sovereign debt crisis. Despite the implementation of extraordinary policy tools, like the “Quantitative Easing” from the Ecb, the European system did not fully recover the downturn. Among all, the policy implementation failed to enhance the Italian economic system. The evidences incite several researches to understand which frictions impeded the correct transmission of policies’ stimuli. A paper from Bloom (2009) suggested a new point of view and started a trend in macroeconomics: the analysis of uncertainty’s shock in macroeconomic models. Following this paper, several authors have published their research about the relationship between uncertainty and economic activities. Almost all the literature focus on the role uncertainty played in the US after the subprime crisis, while European economies have been neglected. But empirical evidences from these countries are more interesting because they suffered two crises. In particular, the Italian case offers an important example about the relationship between uncertainty, economic activities and policy implementation. This paper tries to analyse the relationship between uncertainty and macroeconomic quantities. The focus will be on the system’s response to uncertainty shock.  After the estimation of an empirical model and the implied impulse response functions, the system’s behaviour will be compared with forecast based on a theoretical model, highlighting similarities, differences and some policy implications. The results suggest that the Italian economic system is not robust to uncertainty shocks, which effects persist in the long run.