IDEAS home Printed from https://ideas.repec.org/p/bdi/opques/qef_141_12.html
   My bibliography  Save this paper

Monetary policy and fiscal dominance in Italy from the early 1970s to the adoption of the euro: a review

Author

Listed:
  • Eugenio Gaiotti

    () (Banca d'Italia)

  • Alessandro Secchi

    () (Banca d'Italia)

Abstract

This paper reviews the main literature and evidence on the relevance of fiscal dominance in Italy in the last part of the 20th century and examines the evolution of the techniques of Treasury financing and of monetary targets. In the early 1970s budget deficits and monetary base creation were correlated, but the paper argues that monetary accommodation mostly reflected the considerable weight that the monetary authority assigned to real objectives and to fine-tuning policies. The monetary regime changed in the early 1980s: public deficits continued to expand, but monetary base creation associated with the Treasury decreased, money targets were met, disinflation was successfully initiated. According to the paper, the review of the Italian experience indicates that monetary policy effectiveness in achieving price stability requires the adoption of clear objectives and the independence of the central bank, but it does not require the latter�s sphere of action to be limited to a specific set of operational tools. Furthermore, it signals that the independent management of monetary policy is not a sufficient incentive to foster fiscal responsibility.

Suggested Citation

  • Eugenio Gaiotti & Alessandro Secchi, 2012. "Monetary policy and fiscal dominance in Italy from the early 1970s to the adoption of the euro: a review," Questioni di Economia e Finanza (Occasional Papers) 141, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_141_12
    as

    Download full text from publisher

    File URL: http://www.bancaditalia.it/pubblicazioni/qef/2012-0141/QEF_141.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Tabellini, Guido, 1987. "Central Bank Reputation and the Monetization of Deficits: The 1981 Italian Monetary Reform," Economic Inquiry, Western Economic Association International, vol. 25(2), pages 185-200, April.
    2. Eugenio Gaiotti & Andrea Gavosto & Giuseppe Grande, 1998. "The Rise and Fall of Inflation in Italy in the 1990s: A Comparative Analysis of Four Different Explanations," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 57(3-4), pages 297-324, December.
    3. Fratianni,Michele & Spinelli,Franco, 2005. "A Monetary History of Italy," Cambridge Books, Cambridge University Press, number 9780521023450, April.
    4. Gressani, Daniela & Guiso, Luigi & Visco, Ignazio, 1988. "Disinflation in Italy: An analysis with the econometric model of the bank of Italy," Journal of Policy Modeling, Elsevier, vol. 10(2), pages 163-203.
    5. Alesina, Alberto & Stella, Andrea, 2010. "The Politics of Monetary Policy," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 18, pages 1001-1054 Elsevier.
    6. Donato Masciandaro & Guido Tabellini, 1987. "Monetary regimes and fiscal deficits: a comparative analysis," Proceedings, Federal Reserve Bank of San Francisco, pages 125-152.
    7. Giuseppe Tullio & Marcio Ronci, 1997. "Central Bank Autonomy, the Exchange Rate Constraint and Inflation: The Case of Italy, 1970–1992," Open Economies Review, Springer, vol. 8(1), pages 31-49, January.
    8. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
    9. Carlo Cottarelli, 1993. "Limiting Central Bank Credit to the Government; Theory and Practice," IMF Occasional Papers 110, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Masciandaro, Donato & Romelli, Davide, 2015. "Ups and downs of central bank independence from the Great Inflation to the Great Recession: theory, institutions and empirics," Financial History Review, Cambridge University Press, vol. 22(03), pages 259-289, December.

    More about this item

    Keywords

    Bank of Italy; monetary policy; fiscal dominance;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdi:opques:qef_141_12. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/bdigvit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.