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Macroeconomic Instability and the Phillips Curve in Italy

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

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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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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  1. Chiara Dalle Nogare & Matteo Galizzi, 2011. "The political economy of cultural spending: evidence from Italian cities," Journal of Cultural Economics, Springer, vol. 35(3), pages 203-231, August.
  2. Del Boca, Alessandra & Fratianni, Michele & Spinelli, Franco & Trecroci, Carmine, 2010. "The Phillips curve and the Italian lira, 1861-1998," The North American Journal of Economics and Finance, Elsevier, vol. 21(2), pages 182-197, August.
  3. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1986. "Forecasting and conditional projection using realistic prior distribution," Staff Report 93, Federal Reserve Bank of Minneapolis.
  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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