Populism, Political Risk and the Economy: Lessons from Italy

Balduzzi, Pierluigi; Brancati, Emanuele; Brianti, Marco; Schiantarelli, Fabio

doi:10.2139/ssrn.3534477

Cited by 7 publications

(3 citation statements)

References 52 publications

(67 reference statements)

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“…Gade et al (2013) already stressed the negative influence that political miscommunication had during the European sovereign debt crisis, highlighting that pessimistic viewpoints may have added uncertainty to market perceptions about the financial sustainability of highly indebted countries. On the other side, the European institutions have also been found effective in moderating the negative effects of the rise of populist forces in Italy on financial markets (Balduzzi et al 2020), which further emphasises the importance of the supranational context in affecting the sovereign bond yields of the most indebted countries. By analysing within a VAR and VECM framework the relationship between a new experimental index based on Twitter data (the Istat's Social Mood on Economy Index) and the structure of Italian (and Spanish) sovereign interest rates, our work underlines the relevance of the interconnections between economic sentiment and sovereign bond markets.…”

Section: Discussionmentioning

confidence: 94%

The Impact of the Social Mood on the Italian Sovereign Debt Market: A Twitter Perspective

Carnazza

2023

Ital Econ J

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By analysing the relationship between a new experimental daily index based on Twitter data (the Istat’s Social Mood on Economy Index—SMoEI) and the structure of Italian (and Spanish) sovereign interest rates, our work sheds new light on the great significance of the interconnections between economic sentiment and the Italian sovereign bond market. A placebo test performed on Spain introduces a possible extension of this linkage to the European market, highlighting the deep integration of financial markets within the European Monetary Union. Within a VAR and VECM framework with daily frequency data (2016–2022), we show that public shaping mechanisms play a role in the cost of debt financing. Our analysis emphasises the importance of economic sentiment when it comes to financial markets, putting the role of macroeconomic fundamentals in a different light. This result should be interpreted with caution, as updates to fundamentals can be affected by a time lag. In any case, recognising the importance of this index has at least two implications: on the one side, the SMoEI could represent a more responsive indicator for predicting investor sentiment; on the other side, media channels—as well as the European and national institutions—should gain relevance for their potential impact on collective sentiment, encouraging the importance of economic education and non-alarmist communication.

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Section: Discussionmentioning

confidence: 94%

The Impact of the Social Mood on the Italian Sovereign Debt Market: A Twitter Perspective

Carnazza

2023

Ital Econ J

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“…The coalition government entered a heated debate with the EU on the new budget; the associated uncertainty raised the cost of borrowing and slowed investment. Balduzzi et al (2020) show that political-risk shocks have adversely affected the economy and estimate that the downturn would have been much larger had the ECB not followed accommodative monetary policy. Differences among coalition parties were becoming increasingly apparent, and the government fell apart after just one year in office.…”

Section: Global Effectsmentioning

confidence: 99%

The Political Economy of Populism

Guriev

Papaioannou

2022

Journal of Economic Literature

241

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We synthesize the literature on the recent rise of populism. First, we discuss definitions and present descriptive evidence on the recent increase in support for populists. Second, we cover the historical evolution of populist regimes since the late nineteenth century. Third, we discuss the role of secular economic factors related to cross-border trade and automation. Fourth, we review studies on the role of the 2008–09 global financial crisis and subsequent austerity, connect them to historical work covering the Great Depression, and discuss likely mechanisms. Fifth, we discuss studies on identity politics, trust, and cultural backlash. Sixth, we discuss economic and cultural consequences of growth in immigration and the recent refugee crisis. We also discuss the gap between perceptions and reality regarding immigration. Seventh, we review studies on the impact of the internet and social media. Eighth, we discuss the literature on the implications of populism’s recent rise. We conclude outlining avenues for further research. (JEL D72, E32, G01, J15, N30, N40, Z13)

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“…Huang et al (2015) discussed the impact of international political risk on government bond yields and found a positive and significant link between international political risk and government bond yields, implying higher risk premia at times of high political uncertainty. Balduzzi et al (2020) linked political risk and CDS for Italy and found a significant link. Baur and Smales (2020) analysed the relationship between geopolitical risk and asset prices and showed that geopolitical risk is distinct from existing measures of economic, financial, and political risk.…”

Section: Introductionmentioning

confidence: 99%

Sovereign credit and geopolitical risks during and after the EMU crisis

et al. 2023

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This paper focuses on the sovereign crisis of the Euro debt crisis era, and we address the existence of the relationship of CDS and bond markets sovereign credit risk pricing for selected core and periphery EMU countries, during and after the 2009 EMU crisis. We study this relationship in conjunction to geopolitical risk as a measure of macroeconomic uncertainty. We use daily observations for several bond maturities and CDS premium with reference to the core (France and Germany) versus periphery EMU countries (Portugal, Italy, Ireland Spain, and Greece) for the period 2009 to 2014. To measure global geopolitical risk, we employ the Caldara and Iacoviello (2022) global geopolitics index (GPR). Using alternative econometric approaches, we find adequate evidence of volatility spillovers between the geopolitical risk index and sovereign risk markets mainly during the crisis period (2009–2012) and weaker during the easing of the eurozone debt crisis period (2012–2014). Moreover, based on Granger causality the estimation of the short‐ term dynamics reveals a significant linkage during the post‐crisis period rather than during crisis. During the crisis period, we found significant dynamic responses between GPR and bond yields.

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Populism, Political Risk and the Economy: Lessons from Italy

Cited by 7 publications

References 52 publications

The Impact of the Social Mood on the Italian Sovereign Debt Market: A Twitter Perspective

The Impact of the Social Mood on the Italian Sovereign Debt Market: A Twitter Perspective

The Political Economy of Populism

Sovereign credit and geopolitical risks during and after the EMU crisis

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