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Macroeconomic Instability and the Phillips Curve in Italy

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  • Del Boca Alessandra
  • Fratianni Michele
  • Spinelli Franco
  • Trecroci Carmine

Abstract

The theme of this paper is whether there was a textbook-like inflation-output tradeoff in post-WWII Italy. We estimate both standard and time-varying parameter models of the relationship between inflation and the level of real economic activity over the 1949 to 2010 period and find no evidence of a stable, significant and positive association between output and prices. We attribute this evidence primarily to a fiscally dominated monetary policy and a rigid indexation mechanism aimed at protecting wages from inflation. These two institutions contributed to the persistent inflation bias and macroeconomic instability that lasted almost until the entry of the country in the European Monetary Union.

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Bibliographic Info

Article provided by Società editrice il Mulino in its journal Economia politica.

Volume (Year): (2012)
Issue (Month): 1 ()
Pages: 19-44

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Handle: RePEc:mul:jb33yl:doi:10.1428/36745:y:2012:i:1:p:19-44

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Keywords: J.E.L.: E31; E32; J50; N10;

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  1. Chiara Dalle Nogare & Matteo M Galizzi, 2008. "The Political Economy of Cultural Spending: Evidence from Italian Cities," Working Papers 0818, University of Brescia, Department of Economics.
  2. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
  3. Alessandra Del Boca & Michele Fratianni & Franco Spinelli & Carmine Trecroci, 2009. "The Phillips curve and the Italian lira, 1861-1998," Working Papers 0908, University of Brescia, Department of Economics.
  4. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2009. "Competitive Markets with Private Information on Both Sides," Working Papers 0917, University of Brescia, Department of Economics.
  5. Laura Levaggi & Rosella Levaggi, 2007. "Regulation Strategies for Public Service Provision," Working Papers 0707, University of Brescia, Department of Economics.
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