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Macroeconomic instability and the Phillips curve in Italy

Author

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

Abstract

The theme of this paper is whether there was a textbook-like Phillips curve in post- WWII Italy. We estimate a standard model of the relationship between inflation and the level of real economic activity over the 1949 to 1998 period and find no evidence of a significant and positive feedback from output to prices. We also estimate similar models for the UK and the US and compare them with the Italian experience. Italy stands out as “distinctive” with respect to the two Anglo-Saxon economies. We attribute this difference primarily to a fiscally dominated monetary policy and a rigid indexation mechanism aimed at protecting wages from inflation. These two institutions contributed to a persistent inflation bias and macroeconomic instability that lasted almost up until the entry of the country in the European Monetary Union.

Suggested Citation

  • Alessandra Del Boca & Michele Fratianni & Franco Spinelli & Carmine Trecroci, 2010. "Macroeconomic instability and the Phillips curve in Italy," Working Papers 1013, University of Brescia, Department of Economics.
    • Handle: RePEc:ubs:wpaper:1013
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    References listed on IDEAS

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    1. 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.
    2. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
    3. Laura Levaggi & Rosella Levaggi, 2007. "Regulation Strategies for Public Service Provision," Working Papers 0707, University of Brescia, Department of Economics.
    4. Chiara Dalle Nogare & Matteo Galizzi, 2011. "The political economy of cultural spending: evidence from Italian cities," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 35(3), pages 203-231, August.
    5. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2014. "Competitive markets with private information on both sides," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 257-280, February.
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    Cited by:

    1. 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.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

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