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Central Bank Autonomy, the Exchange Rate Constraint and Inflation: The Case of Italy, 1970–1992

  • Giuseppe Tullio
  • Marcio Ronci
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    This paper analyzes the determinants of inflation in Italy over the period 1970–1992. Particular emphasis is placed on the role of central bank independence in influencing monetary growth, and on the role of monetary growth and of the Exchange rate Mechanism (ERM) in affecting inflation. In the 1970s and early 1980s, when the Bank of Italy lacked independence and the ERM was still not credible, monetary growth was highly unstable and was the main determinant of Italian inflation, although oil price and tax shocks also played a role. After the March 1983 general exchange rate realignment and the French U-turn, the ERM became more credible and monetary growth stopped being a significant determinant of inflation; instead, the German inflation became the main variable influencing Italian inflation. Copyright Kluwer Academic Publishers 1997

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    File URL: http://hdl.handle.net/10.1023/A:1008233014918
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    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 8 (1997)
    Issue (Month): 1 (January)
    Pages: 31-49

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    Handle: RePEc:kap:openec:v:8:y:1997:i:1:p:31-49
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    1. Richard C.K. Burdekin & Leroy O. Laney, 1986. "Fiscal policymaking and the central bank institutional constraint," Research Paper 8606, Federal Reserve Bank of Dallas.
    2. Pierre-Richard Agénor & Mark P. Taylor, 1991. "Testing for Credibility Effects," IMF Working Papers 91/110, International Monetary Fund.
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