Introduction section ITEM e OEF - Oxford Economic Forecasting

ITEM e OEF - Oxford Economic Forecasting

The Department of Treasury, together with Oxford Economics, integrated in 2013 the Italian Treasury Econometric Model (ITEM) with Oxford’s Global Economic Model, which provides detailed coverage of 46 economies, including the US, Japan, most EU economies, China, India and other leading emerging markets, as well as headline indicators for another 30 economies. Extensive testing ensured that the integrated model accurately replicates the original ITEM and responds to standardized shocks exactly as the Treasury’s own proprietary model.

The main benefit of this integration is that the Treasury can now employ a macroeconomic model that includes full economic interaction between the 45 most important foreign economies and Italy. This model proves particularly useful by capturing and quantifying the indirect effects of global scenarios on the Italian economy. For example, the model can quantify the indirect effects of exogenous variables, such as a rise in global oil prices, which not only increases inflation but also reduces economic activity in Italy’s trading partners, with weaker foreign demand hurting Italy’s exports. Using the original ITEM, such effects could not have been captured.

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