Monetary policy at the periphery during the classical gold standard: Italy (1894-1913)
Abstract: Focusing on the dominant bank of issue of the time (the Banca d’Italia), this paper analyses monetary policy in Italy between 1894 and WWI, using an original measure of the “effective” discount rate that takes into account changes in the rates applied as well as the relative quantities of bills discounted at each rate. The paper shows how discount rate policy was dictated by the targeting of long-term equilibrium levels of money supply and reserve coverage, while no role was played by the exchange rate. The attention to these variables was mainly in response to corporate goals up until the turn of the century, while it also responded to policy aims afterwards. In the later part of the period, the Bank also targeted a long-term equilibrium spread towards the French market rate, while changes in the official discount rates in French and Germany also triggered reactions. These, however, were rather modest, and this policy of “sterilization” did not need major adjustments in the Bank’s balance sheet.
Paolo Di Martino is an Associate Professor in the Department of Economics, Social Studies, Applied Mathematics and Statistics at the University of Turin.
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