A dissonant violin in the international orchestra? Discount rate policy in Italy (1894-1913)

Paolo Di Martino and Fabio Bagliano

Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: Based on a new series and applying econometric techniques, this paper investigates the discount rate policy implemented by the main Italian bank of issue of the time, the Banca d’Italia. We focus on two interrelated aspects of the problem. Firstly, anchoring our analysis to the Bank’s annual reports, we enquiry into the general determinants of its discount rate variations. Secondly, we study the reaction of the Italian rate to exogenous changes in leading international official rates. We show that discount rate variations responded to short-term fluctuations of official rates in the UK and France but, simultaneously, to deviations from long-term equilibrium relations involving two pairs of variables. On the one hand, a relationship between the Italian discount rate and the French open market rate; on the other hand, a link between the Bank’s reserve ratio and its exposure to the national credit market. We also show that reactions to variations in foreign official rates were of a very limited magnitude. This “sterilisation†policy came with little repercussions in terms of exchange rate fluctuations or loss of international reserves, somehow in contrast with the results of the recent literature.

Keywords: Bank of Italy; discount rate policy; international gold standard; sterilization (search for similar items in EconPapers)
Pages: 39 pages
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-his and nep-mon
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Working Paper: A dissonant violin in the international orchestra? Discount rate policy in Italy (1894-1913) (2022)
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