Discretionary spending drives shock transmission in Italy
A Banca d'Italia study shows that the transmission of macroeconomic shocks in Italy depends heavily on whether spending is discretionary and whether it involves goods or services. Discretionary items absorb nearly all cyclical fluctuations, but services adjust with significantly longer lags than goods following monetary policy shocks.
Beyond the goods-services divide
Analyzing Italy's household consumption basket across 52 COICOP categories reveals that macroeconomic shocks transmit primarily through discretionary spending.
While necessary consumption items like food, energy, and housing services remain stable or grow steadily, discretionary items absorb virtually all cyclical fluctuations.
The authors combine the traditional goods-services distinction with price elasticity to separate necessary from discretionary components.
Over the past two decades, Italian expenditure shifted structurally from goods toward services.
Necessary services expanded and proved resilient, whereas discretionary services collapsed during the pandemic before recovering to early 2000s levels by 2024, highlighting distinct structural trends.
The asymmetric timing of shocks
The transmission speed of macroeconomic shocks varies markedly between policy instruments.
Following a monetary policy shock, discretionary goods reach a negative peak in five months, whereas discretionary services take fifteen months due to high persistence, lower divisibility, and habit formation.
By contrast, energy shocks trigger rapid adjustments in both goods and services, hitting a trough in just over two months through immediate purchasing power losses.
A blind spot in policy design
Standard macroeconomic models risk misjudging policy impacts if they treat consumption as a monolith.
Failing to account for the sluggish adjustment of services obscures the true transmission horizon.
Policymakers must monitor disaggregated discretionary spending to avoid severe policy miscalibrations.