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Exchange Rate Regimes and Reserve Policy on the Periphery: The Italian Lira 1883-1911

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Author Info
Filippo Cesarano () (Banca D'Italia)
Giulio Cifarelli () (Università degli Studi di Firenze, Dipartimento di Scienze Economiche)
Gianni Toniolo ()

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Abstract

The three exchange rate regimes adopted by Italy from 1883 up to the eve of World War I — the gold standard (1883-1893), floating rates (1894-1902), and “gold shadowing” (1903-1911) — produced a puzzling result: formal adherence to the gold standard ended in failure while shadowing the gold standard proved very successful. This paper discusses the main policies underlying Italy’s performance particularly focusing on the strategy of reserve accumulation. It presents a cointegration analysis identifying a distinct co-movement between exchange rate, reserves, and banknotes that holds over the three sub-periods of the sample. Given this long-run relationship, the different performance in each regime is explained by the diversity of policy measures, reflected in the different variables adjusting the system in the various regimes. Italy’s variegated experience during the gold standard provides a valuable lesson about current developments in the international scenario, showing the central role of fundamenals and consistent policies.

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Paper provided by Universita' degli Studi di Firenze, Dipartimento di Scienze Economiche in its series Working Papers Series with number wp2009_11.rdf.

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Length: 39 pages
Date of creation: 2009
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Handle: RePEc:frz:wpaper:wp2009_11.rdf

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Related research
Keywords: Exchange rate; gold standard; reserve policy; cointegration;

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
N13 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Europe: Pre-1913
N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913

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