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The Phillips Curve and the Italian Lira, 1861-1998

27 Pages Posted: 8 Jul 2008 Last revised: 12 May 2014

Alessandra Del Boca

University of Brescia - Department of Economics

Michele U. Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche

Franco Spinelli

University of Brescia - Department of Economics

Carmine Trecroci

University of Brescia

Date Written: June 16, 2009

Abstract

We examine Italian inflation rates and the Phillips curve with a very long-run perspective, one that covers the entire existence of the Italian lira from political unification (1861) to the entry of Italy in the European Monetary Union (end of 1998). We first study the volatility, persistence and stationarity of the Italian inflation rate over the long run and across various exchange-rate regimes that have shaped Italian monetary history. Next, we estimate alternative Phillips equations and investigate the extent to which nonlinearities, asymmetries and structural changes characterize the inflation-output trade-off in the long run. We capture the effects of structural changes and asymmetries on the estimated parameters of the inflation-output trade-off relying partly on sub-sample estimates and partly on time-varying parameters estimated with the Kalman filter. Finally, we investigate causal relationships between inflation rates and output and extend the analysis to include the US and the UK for comparison purposes. The inference is that Italy has experienced a conventional inflation-output trade-off only during times of low inflation and stable aggregate supply.

Keywords: inflation, Phillips curve, Italian lira

JEL Classification: E31, E32, E5, N10

Suggested Citation

Del Boca, Alessandra and Fratianni, Michele U. and Spinelli, Franco and Trecroci, Carmine, The Phillips Curve and the Italian Lira, 1861-1998 (June 16, 2009). Available at SSRN: https://ssrn.com/abstract=1156845 or http://dx.doi.org/10.2139/ssrn.1156845

Alessandra Del Boca

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Michele Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3360 (Phone)
812-855-3354 (Fax)

Universita' Politecnica delle Marche ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
39-071-2207120 (Phone)

Franco Spinelli

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Carmine Trecroci (Contact Author)

University of Brescia ( email )

Via San Faustino 74B
Brescia, 25122
Italy

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