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Alternative monetary approaches and causal nexus breakdown in rate of interest and currency reserves in Italy, 1961-1990

Giuseppe Conti and Luciano Fanti

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: Following a renewed interest for the investigation of the monetary policy in the Italian experience, this paper focus on the role of the official reserves as a target of Bank of Italy for the period 1961-1990, motivated by a long lasting tradition (e.g. Hawtrey, Keynes, Kaldor) for which reserves were crucial for the central bank behaviour. This paper analyses, mostly by using the Granger causality test, if this "traditional" rule could have been working for Italy in recent periods as well, regardless of exchange rate regimes and the mainstream monetary theories. Main conclusions neatly support the existence of two sub-periods: a first one (before 1979) during which the "traditional" praxis occurs; and a second one (after 1979) when the "alternative" praxis seems to prevail. This would confirm the break in monetary targeting adopted by the Italian central bank at the end of the Seventies.

Keywords: Monetary policy; interest rate; reserve ratio; Bank of Italy; Granger test (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2020-12-01
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac, nep-mon and nep-pke
Note: ISSN 2039-1854
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Handle: RePEc:pie:dsedps:2020/264