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Lessons from Italian monetary unification

Foreman-Peck, James S. 2006. Lessons from Italian monetary unification. [Working Paper]. Osterreichische Nationalbank Working Paper, Osterreichische Nationalbank. Available at: http://www.cepr.org/meets/wkcn/1/1617/papers/Forem...

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Abstract

This paper examines whether the states brought together in the Italian monetary union of the nineteenth century constituted an optimum monetary area, either before or after unification. Interest rate shocks indicate close relations between states in northern Italy but negative correlations between the North and the South before unification, suggesting some advantages of continued Southern monetary independence. The proportion of Southern Italian trade with the North was small, in contrast to intraNorthern trade, and therefore monetary independence imposed a light burden. Changes in the wheat market indicate that the South and North after unification (though not probably because of it) increasingly specialised according to their comparative advantages. Coupled with differences in economic behaviour of the Southern economy, this meant that monetary policies appropriate for the North were less so for the South. In the face of agricultural shocks originating in the New World and in France, the South would have gained from depreciating its exchange rate against the North or against the non-Italian world. As it was, nineteenth century Italian monetary union did not create the conditions for its own success, contrary to the findings of Frankel and Rose (1998) for the later twentieth century.

Item Type: Monograph (Working Paper)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HJ Public Finance
Publisher: Osterreichische Nationalbank
Last Modified: 04 Jun 2017 04:29
URI: http://orca.cf.ac.uk/id/eprint/39869

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