Fiscal Dominance and Money Growth in Italy: The Long Record (original) (raw)
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RePEc: Research Papers in Economics, 2012
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.
Deficits, Money Growth and Inflation in Italy: 1875-1994
Economic Notes, 1999
In this paper, we examine econometrically the``®scal dominance'' model of the Monetary History of Italy proposed by . We test the proposition that monetary policy is endogenous to ®scal policy, and that such an endogeneity creates a speci®city in the process generating Italian in¯ation. We perform our econometric tests by estimating a small structural linear econometric model, addressing carefully the issues of data-congruency of the speci®cation, non-stationarity, cointegration, and credibility of the over-identifying restrictions. Our econometric investigation is based on a sample of annual observations from 1875±1994 and exploits the structural break which occurred in 1975, when Baf® became Governor of the Bank of Italy and the lack of independence of the central bank was ®rst perceived as a problem. Baf® started the slow evolution process leading to the independence of the central bank, which was institutionally rati®ed by his successor Ciampi, when, in 1981, the Bank of Italy interrupted his commitment to buy all the government bonds left unsold in the public tenders (the``divorce''). Our empirical analysis over the sample 1875±1975 con®rms the existence of a link between government de®cit and money growth, and of a long-run relationship between the quantity of money and the price level; the evidence also stresses the relevance of supply side factors in the determination of in¯ation. When the model estimated for the sample 1875±1975 is applied to the period 1975±1994, a clear structural break in the relation between government de®cits and money growth emerges.
Central Bank Reputation and the Monetization of Deficits: The 1981 Italian Monetary Reform
Economic Inquiry, 1987
In 1981 the Bank of Italy was freed from the obligation to purchuse the unsold public debt at the Treasury auctions. Since then, the Bank of Italy has reduced debt monetization. The paper seeks to explain this policy shift by analyzing a game between the monetary and fiscal authorities. The fical authority is imperfectly informed about the central bank preferences. An equilibrium exists in which the central bank does not monetize, so as to establish a reputation of being independent. Monetization raises fical deficits and may raise public debt relative to a nonaccommodative policy.
Fiscal Policy and Public Debt Dynamics in Italy, 1861-2009
SSRN Electronic Journal, 2012
We examine the historical dynamics of government debt in Post-Unification Italy, from 1861 to 2009. Unit root tests for the debt-GDP ratio are unable to reject either the non-stationarity or the stationarity null hypothesis. Controlling debt dynamics for fiscal feedback policies of the Barro-Bohn style, however, the debt-GDP ratio is found to be mean-reverting. Mean-reversion in the debt-GDP ratio is due not only to a nominal growth dividend, but also to a positive response of primary surpluses to variations in outstanding debt. There is indeed significant evidence that, over the history of Italy, fiscal policy makers have reacted to the accumulation of debt, taking corrective measures to rule out potential long-term sustainability problems.
Fiscal Policy and Public Debt Dynamics in Italy
2011
We examine the historical dynamics of government debt in Post-Unification Italy, from 1861 to 2009. Unit root tests for the debt-GDP ratio are unable to reject either the non stationarity or the stationarity null hypothesis. Controlling debt dynamics for fiscal feedback policies of the Barro-Bohn style, however, the debt-GDP ratio is found to be mean-reverting. Mean-reversion in the debt-GDP ratio is due not only to a nominal growth dividend, but also to a positive response of primary surpluses to variations in outstanding debt. There is indeed significant evidence that, over the history of Italy, fiscal policy makers have reacted to the accumulation of debt, taking corrective measures to rule out potential long-term sustainability problems.
This version: June 1994IS MONEY NEUTRAL? SOME EVIDENCE FOR ITALY *
1993
The aim of this paper is to verify the hypothesis of money neutrality in the Italian experience. After a critical overview of the traditional techniques employed to verify this hypothesis, cointegration technique is used to verify: long-run neutrality, weak evidence of long-run superneutrality but absence of hyperneutrality. The absence of hyperneutrality implies that an acceleration of the growth rate of money affects real output.
In Search of Monetary Policy Measures: the Case of Italy in the 90s
SSRN Electronic Journal, 2000
In this paper we present a structural VAR analysis of monetary policy in Italy. A monetary policy operating regime based on the control of the overnight rate seems to t the data better than alternative quantitative monetary regimes. The model allows us to derive a n o v erall indicator of the monetary policy stance that is able to highlight the major episodes of monetary contraction in the sample. JEL Classi cation: E520.