The Lira’s purchasing power from Italy’s unification to the single European Currency

This article analyses the behaviour of several price indexes over the whole life of the Italian lira (1861-1998), and for various sub-periods defined by the exchange-rate regimes of the Italian monetary history. We focus on the persistence and stationarity properties of the inflation process and their dependence on the real cycle. An international comparison with the United States and the United Kingdom further supports the conclusion that Italian inflation was abnormal as far as its mean value, degree of persistence and relationship to the real cycle are concerned. In particular, we find that the output-inflation relationship had a textbook-like, positive slope only during periods of low inflation and low production volatility.