Italian Regional Econometric Model

This paper shifts studies on macroeconomic models from a national to a regional scope. Regions, indeed, often follow growth trajectories that differ greatly from others within the same country. In this study we propose a macroeconometric model for 20 economies corresponding to the Italian administrative Regions. We called it: IREM (Italian Regional Econometric Model). We illustrate the general structure and properties of IREM, especially with regard to the economy’s response to changes in regional fiscal policy, technological advances and other dimensions of the economic environment. One of the model’s key features is the joint representation of the economy on both the demand and the supply side with a multiple estimating equations system calibrated at regional level. Public finance is designed in great detail, with multiple specific equations for local government expenses and revenues, using the Italian database CPT (Conti Pubblici Territoriali). After documenting the model structure and the estimation results with an in-sample simulation, we turn to illustrate the model properties through the study of its response functions to multiple shocks.