Macroeconomic Instability and the Phillips Curve in Italy

35 Pages Posted: 27 May 2009 Last revised: 12 May 2014

See all articles by Alessandra Del Boca

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: October 3, 2011

Abstract

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.

Keywords: fiscal dominance, inflation, macroeconomic stability, wage indexation, Phillips curve

JEL Classification: E31, E32, J50, N10

Suggested Citation

Del Boca, Alessandra and Fratianni, Michele and Spinelli, Franco and Trecroci, Carmine, Macroeconomic Instability and the Phillips Curve in Italy (October 3, 2011). Available at SSRN: https://ssrn.com/abstract=1409689 or http://dx.doi.org/10.2139/ssrn.1409689

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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