Disinflation and re-inflation in Italy and the implications for transition to monetary union

Abstract

This paper presents a detailed discussion of inflation in Italy during the 1980s. The early 1980s witnessed disinflation but in the second-half inflation has re-emerged. The paper is relevant to the EMS debate, between the ‘monetarists’ (advocating immediate and irreversible fixity of exchange rates) and the ‘economists’ (warning of systemic rigidities and urging caution). The evidence is mixed: the EMS seems to have been accompanied by a convergence of inflation, but at a cost of stubborn unemployment suggesting that the policy has not been cost-free. Italian data is reviewed in the context of this discussion. JEL: E32, E42, F15

Keywords

• Italy
• Inflation
• Monetary union