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Potential Output, Output Gap, and Inflation in Italy in the Long Term (1861-2010): An Econometric Analysis

Author

Listed:
  • Alberto Baffigi

    () (Bank of Italy)

  • Maria Elena Bontempi

    () (University of Bologna)

  • Roberto Golinelli

    () (University of Bologna)

Abstract

We exploit the new historical national accounts data for Italy over the period 1861-2010, built by Banca d'Italia and Istat, with the collaboration of the University of Rome "Tor Vergata". In the first part of the paper, a thorough study of the new data's statistical properties is presented mainly aimed to analyse the variability of the cyclical component of constant price GDP. The GDP cyclical component, interpreted as output gap, is used, in the second part of the paper, to assess the Phillips curve's ability to explain inflation dynamics over a wide variety of circumstances, over the 150 years of the country's history. In Italy, the relation linking inflation with the cyclical situation in the economy emerged only after World War I, while in US and UK it was operating already in the mid 19th century.

Suggested Citation

  • Alberto Baffigi & Maria Elena Bontempi & Roberto Golinelli, 2013. "Potential Output, Output Gap, and Inflation in Italy in the Long Term (1861-2010): An Econometric Analysis," Quaderni di storia economica (Economic History Working Papers) 29, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:workqs:qse_29
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    File URL: http://www.bancaditalia.it/pubblicazioni/quaderni-storia/2013-0029/QSE_29.pdf
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    Cited by:

    1. Riccardo De Bonis & Andrea Silvestrini, 2014. "The Italian financial cycle: 1861-2011," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 8(3), pages 301-334, September.
    2. Baffigi, Alberto & Bontempi, Maria Elena & Felice, Emanuele & Golinelli, Roberto, 2015. "The changing relationship between inflation and the economic cycle in Italy: 1861–2012," Explorations in Economic History, Elsevier, vol. 56(C), pages 53-70.

    More about this item

    Keywords

    macroeconomic history; output gap; structural break; principal components; volatility; triangle model; New Keynesian Phillips curve; industrialization;

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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