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The Phillips Curve and the Italian Lira, 1861-1998

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  • Alessandra Del Boca

    (University of Brescia)

  • Michele Fratianni

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Franco Spinelli

    (University of Brescia)

  • Carmine Trecroci

    (University of Brescia)

Abstract

We examine Italian inflation rates and the Phillips curve with a very long-run perspective, one that covers the entire existence of the Italian lira from political unification (1861) to the entry of Italy in the European Monetary Union (end of 1998). We first study the volatility, persistence and stationarity of the Italian inflation rate over the long run and across various exchange-rate regimes that have shaped Italian monetary history. Next, we estimate alternative Phillips equations and investigate the extent to which nonlinearities, asymmetries and structural changes characterize the inflation-output trade-off in the long run. We capture the effects of structural changes and asymmetries on the estimated parameters of the inflation-output trade-off relying partly on sub-sample estimates and partly on time-varying parameters estimated with the Kalman filter. Finally, we investigate causal relationships between inflation rates and output and extend the analysis to include the US and the UK for comparison purposes. The inference is that Italy has experienced a conventional inflation-output trade-off only during times of low inflation and stable aggregate supply.

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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2008-05-delboca-fratianni-spinelli-trecroci.pdf
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Bibliographic Info

Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2008-05.

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Date of creation: Jul 2008
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Handle: RePEc:iuk:wpaper:2008-05

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Keywords: inflation; Phillips curve; Italian lira;

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