... This Discussion Paper is issued under the auspices of the Centre's research programme in INTERNATIONAL MACROECONOMICS. Any opinions expressed here are those of the author(s) and not those of the Centre for Economic Policy... more
... This Discussion Paper is issued under the auspices of the Centre's research programme in INTERNATIONAL MACROECONOMICS. Any opinions expressed here are those of the author(s) and not those of the Centre for Economic Policy Research. ...
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3. Measuring money with a Divisia index: an application to Italy Eugenio Gaiotti 1 INTRODUCTION Most of the short-term instruments included in ... For the US, Barnett (1982) concludes that the Divisia index based on the broader aggregate... more
3. Measuring money with a Divisia index: an application to Italy Eugenio Gaiotti 1 INTRODUCTION Most of the short-term instruments included in ... For the US, Barnett (1982) concludes that the Divisia index based on the broader aggregate (L) performs better than both traditional ...
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Does monetary policy have asymmetric effects? A look at the investment decisions of Italian firms
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Is money informative? Evidence from a large model used for policy analysis
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Temi di discussione
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Page 1. EUGENIO GAIOTTI ALESSANDRO SECCHI Is There a Cost Channel of Monetary Policy Transmission? An Investigation into the Pricing Behavior of 2,000 Firms The paper exploits a unique panel, covering some 2,000 ...
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We assemble an original panel of 2,500 restaurant prices in Italy over the period 1998-2004 to study whether, and through which channels, the introduction of euro coins and banknotes had an impact on individual pricing behaviour. We reach... more
We assemble an original panel of 2,500 restaurant prices in Italy over the period 1998-2004 to study whether, and through which channels, the introduction of euro coins and banknotes had an impact on individual pricing behaviour. We reach three conclusions. Firstly, the evidence suggest that the large price increases in this industry are mostly not due to the cash changeover; the event might have focussed public attention on the cumulative price increases which took place before the changeover, reflecting costs and demand. Secondly, the rise in the average meal price was mainly due to a larger proportion of agents revising their prices, rather than to large individual revisions. Finally, more local market power (as proxied by a concentration index) was associated with a larger price increase; an interpretation is proposed for the latter finding, which also explains why the effects of the cash changeover were stronger in less competitive industries.
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Justin Yifu Lin the global crisis, which erupted in developed countries and spread across the world in 2008 (the so-called Great recession), has profoundly affected the economic outlook and economic thinking. Indeed, it has extended its... more
Justin Yifu Lin the global crisis, which erupted in developed countries and spread across the world in 2008 (the so-called Great recession), has profoundly affected the economic outlook and economic thinking. Indeed, it has extended its impact to every corner of the globe. In ...
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The empirical literature on the transmission of monetary policy to inflation in Italy has stressed the importance of the exchange rate and, to some extent, of the demand channel; recently, the roles of inflation expectations and the... more
The empirical literature on the transmission of monetary policy to inflation in Italy has stressed the importance of the exchange rate and, to some extent, of the demand channel; recently, the roles of inflation expectations and the fiscal situation have been emphasized. This paper uses vector auto-regression to address this issue. The results suggest that inflation expectations do matter as determinants of inflation, along with the exchange rate and demand.
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Are a firm’s foreign and domestic sales complements, substitutes or uncorrelated? The question is relevant both to assess the international transmission of shocks and in the context of the European sovereign debt crisis: it has been... more
Are a firm’s foreign and domestic sales complements, substitutes or uncorrelated? The question is relevant both to assess the international transmission of shocks and in the context of the European sovereign debt crisis: it has been argued that the 2012-2013 recession was prompted by domestic demand but had in turn relevant adverse effect for the exporting capacity of Italian firms. Standard international trade theory predicts no interdependency between foreign and domestic sales; recent literature shows that different channels may justify either a negative (through capacity constraints) or a positive (through economies of scale or liquidity constraints) correlation, both at the aggregate and at the micro level; the evidence, however, is rather mixed. Using microdata on a sample of Italian manufacturing firms from 2001 to 2012, we show that: i) the sign of the correlation changes over the business cycle, being negative in the first part of the past decade and positive after the 2008...
We assemble an original panel of 2,500 restaurant prices in Italy over the period 1998-2004 to study whether, and through which channels, the introduction of euro coins and banknotes had an impact on individual pricing behaviour. We reach... more
We assemble an original panel of 2,500 restaurant prices in Italy over the period 1998-2004 to study whether, and through which channels, the introduction of euro coins and banknotes had an impact on individual pricing behaviour. We reach three conclusions. Firstly, the evidence suggest that the large price increases in this industry are mostly not due to the cash changeover; the event might have focussed public attention on the cumulative price increases which took place before the changeover, reflecting costs and demand. Secondly, the rise in the average meal price was mainly due to a larger proportion of agents revising their prices, rather than to large individual revisions. Finally, more local market power (as proxied by a concentration index) was associated with a larger price increase; an interpretation is proposed for the latter finding, which also explains why the effects of the cash changeover were stronger in less competitive industries.
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The paper considers four explanations of the recent turnaround in inflation in Italy: the Exchange rate channel that was the centerpiece of the monetary policy strategy in the preceding decade; domestic aggregate demand; inflation... more
The paper considers four explanations of the recent turnaround in inflation in Italy: the Exchange rate channel that was the centerpiece of the monetary policy strategy in the preceding decade; domestic aggregate demand; inflation expectations and “fiscal dominance,” that have both been a central issue in the recent debate on monetary policy effectiveness. The weight of each story is assessed by way of a vector auto-regression. The results suggest that inflation expectations did matter as determinants of actual inflation; in contrast, changes in the default premium on the public debt are not found to have had a significant effect on inflation, thus rejecting the assumption of “fiscal dominance”. The two episodes of sharp exchange rate depreciation (in 1992 and 1995) were a major factor in pushing prices up; however, the expectational climate and demand shocks also appear to have played an important role.
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This paper studies the effects of monetary policy on the investment behaviour of various categories of Italian firms, using a panel from the Company Accounts Data Service (Centrale dei Bilanci). The exercise aims to shed light on the... more
This paper studies the effects of monetary policy on the investment behaviour of various categories of Italian firms, using a panel from the Company Accounts Data Service (Centrale dei Bilanci). The exercise aims to shed light on the quantitative importance of a channel of transmission operating through balance sheets. Financial variables matter (when defined as either cash flow or the stock of liquidity); small firms and firms which have a larger share of assets that cannot be used as collateral are more affected by monetary policy. In quantitative terms, the difference in the response of investment by different types of firms turns out not to be negligible; however, the implications of this finding for transmission asymmetries across euro-area countries should not be overemphasized. Our main policy conclusion is that monitoring the financial conditions of different types of firms is important in order to assess the overall monetary stance.
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We assess the impact of the main unconventional monetary measures adopted by the European Central Bank in 2011–12 (the Securities Markets Programme, the three-year longer-term refinancing operations, and the Outright Monetary... more
We assess the impact of the main unconventional monetary measures adopted by the European Central Bank in 2011–12 (the Securities Markets Programme, the three-year longer-term refinancing operations, and the Outright Monetary Transactions) on the Italian economy. We first estimate the indirect effects on financial and credit markets and then we map them onto their macroeconomic implications. The results suggest that all operations have, to varying degrees, contributed to counteract the increase in government bond yields and to improve credit supply and money-market conditions. From a macroeconomic perspective, the measures have had a large positive effect, mainly through the credit channel, with a cumulative impact on GDP growth of 2.7 percentage points over the period 2012–13.
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The paper studies the transmission of monetary policy shocks in Italy, by means of a structural VAR, using a long data sample; focusing on a long sample period permits a comparison between the Italian evidence and the international... more
The paper studies the transmission of monetary policy shocks in Italy, by means of a structural VAR, using a long data sample; focusing on a long sample period permits a comparison between the Italian evidence and the international literature and makes it possible to test the robustness of the results in relation to structural and institutional changes.
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The paper studies the transmission of monetary policy through its effects on the exchange rate and on long-term interest rates under different schemes of expectations formation, within the framework of the quaterly model of the Banca... more
The paper studies the transmission of monetary policy through its effects on the exchange rate and on long-term interest rates under different schemes of expectations formation, within the framework of the quaterly model of the Banca d'Italia (BIQM).
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... restaurant prices, a more formal version of this view, based on collusive behavior and multiple equilibria is advanced by Adriani et al. (2003). The second set of explanations ... A related study based on disaggregated data is offered... more
... restaurant prices, a more formal version of this view, based on collusive behavior and multiple equilibria is advanced by Adriani et al. (2003). The second set of explanations ... A related study based on disaggregated data is offered by Adriani et al. ...
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The paper studies the transmission of monetary policy shocks in Italy, by means of a structural VAR, using a long data sample; focusing on a long sample period permits a comparison between the Italian evidence and the international... more
The paper studies the transmission of monetary policy shocks in Italy, by means of a structural VAR, using a long data sample; focusing on a long sample period permits a comparison between the Italian evidence and the international literature and makes it possible to test the robustness of the results in relation to structural and institutional changes.
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The paper studies the transmission of monetary policy through its effects on the exchange rate and on long-term interest rates under different schemes of expectations formation, within the framework of the quaterly model of the Banca... more
The paper studies the transmission of monetary policy through its effects on the exchange rate and on long-term interest rates under different schemes of expectations formation, within the framework of the quaterly model of the Banca d'Italia (BIQM).
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The empirical literature on the transmission of monetary policy to inflation in Italy has stressed the importance of the exchange rate and, to some extent, of the demand channel; recently, the roles of inflation expectations and the... more
The empirical literature on the transmission of monetary policy to inflation in Italy has stressed the importance of the exchange rate and, to some extent, of the demand channel; recently, the roles of inflation expectations and the fiscal situation have been emphasized. This paper uses vector auto-regression to address this issue. The results suggest that inflation expectations do matter as
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The paper studies the transmission of monetary policy shocks in Italy, by means of a structural VAR, using a long data sample; focusing on a long sample period permits a comparison between the Italian evidence and the international... more
The paper studies the transmission of monetary policy shocks in Italy, by means of a structural VAR, using a long data sample; focusing on a long sample period permits a comparison between the Italian evidence and the international literature and makes it possible to test the robustness of the results in relation to structural and institutional changes.
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The paper considers four explanations of the recent turnaround in inflation in Italy: the Exchange rate channel that was the centerpiece of the monetary policy strategy in the preceding decade; domestic aggregate demand; inflation... more
The paper considers four explanations of the recent turnaround in inflation in Italy: the Exchange rate channel that was the centerpiece of the monetary policy strategy in the preceding decade; domestic aggregate demand; inflation expectations and “fiscal dominance,” that have both been a central issue in the recent debate on monetary policy effectiveness. The weight of each story is assessed
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In this paper we assess whether monetary variables, which are observed with little delay, conveyed marginal information on the state of the Italian economy in the 1990s, taking as a benchmark the forecasting errors generated by the... more
In this paper we assess whether monetary variables, which are observed with little delay, conveyed marginal information on the state of the Italian economy in the 1990s, taking as a benchmark the forecasting errors generated by the quarterly model used by the Bank of Italy. We follow two approaches. First we map monetary surprises into estimates of the structural disturbances
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This paper assesses the relevance of national information in estimating the demand for euro-area M3 from three perspectives. First, we check whether aggregating national money demands is appropriate. Second, we compare time-series and... more
This paper assesses the relevance of national information in estimating the demand for euro-area M3 from three perspectives. First, we check whether aggregating national money demands is appropriate. Second, we compare time-series and panel methods to estimate aggregate long-run coefficients. Finally, we investigate the differences among national money demands. We find that the hypothesis of perfect aggregation is not rejected.
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ABSTRACT 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... more
ABSTRACT 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.
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The empirical literature on the transmission of monetary policy to inflation in Italy has stressed the importance of the exchange rate and, to some extent, of the demand channel; recently, the roles of inflation expectations and the... more
The empirical literature on the transmission of monetary policy to inflation in Italy has stressed the importance of the exchange rate and, to some extent, of the demand channel; recently, the roles of inflation expectations and the fiscal situation have been emphasized. This paper uses vector auto-regression to address this issue. The results suggest that inflation expectations do matter as