Modelling Italian Inflation, 1970 - 1998

Abstract

In this paper a paper for the dynamics of inflation in Italy is proposed.Changes in monetary and credit markets, along with substantional changes in many sectors of the Italian economy suggest to split the sample period into two sub-sample and modelling the dynamics of inflation differently for each of the periods. Disequilibria from both demand and supply sides of the economy strongly contribute to the determination of inflation consistenly with each of the mainly theoretical explanations. Equilibrium-correction terms are developed for all sectors of the economy for each the two sub-samples. The different responses of the inflation growth rate to the different equilibrium relations found in the two periods strongly support the separate investigation pursued in the empirical analysis. Moreover, the empirical analisys confirms that no single cause can explanain the pattern of the Italian inflationInflation dynamics, Disequilibria, Structural breaks, Equilibrium correction model