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I investigate the dynamics of core inflation in Italy, with a special focus on the decline that started in 2012 and the ensuing low-inflation period. Novel composite indicators of labour and financial market conditions are constructed and employed in a factor-augmented Phillips curve framework. Several findings follow. The Phillips curve, apparently dead when based on the unemployment gap or the output gap, is instead correctly underpinned when slack is extracted from the labour market composite indicator: the underlying large set of variables is beneficial for conditionally forecasting core inflation. Second, financial market composite indicators help to better characterize core inflation dynamics in times of unconventional monetary policy and when considering their interactions with economic slack. Third, a steepening of the Phillips curve is evident after 2008, before a stabilization is observed in 2016. These results can inform monetary authorities in their quest for sustained adjustment in the path of inflation.

On the Stability of Euro Area Money Demandand its Implications for Monetary PolicyFebruary 27, 2018AbstractWe employ a recent time-varying cointegration test to revisit the usefulness of long-runmoney demand equations for the ECB, addressing the issue of their instability by meansof a model evaluation exercise. Building on the results, we make a twofold contribution.First, we propose a novel stable money demand equation relying on two crucial factors:a speculative motive, represented by domestic and foreign price-earnings ratios, and aprecautionary motive, measured by changes in unemployment. Second, we use the modelto derive relevant policy implications for the ECB, since excess liquidity looks more usefulfor forecasting stock market busts than future inflation. Overall, this evidence pointsto (i) a possible evolution of the monetary pillar in the direction of pursuing financialstability and (ii) the exclusion of a sudden liquidity–driven inflationary burst after theexit from the prolonged period of unconventional monetary measures.

We evaluate the role of US monetary policy in shaping inflation and economic activity by means of a medium-scale Bayesian VAR model, where the ZLB and the unconventional measures are addressed by using a shadow interest rate. The historical decomposition and a conditional forecast scenario show that the FED’s stance is in line with GDP and inflation dynamics. Moreover, core inflation will likely lie below its target in 2017.

Market risk premia play an important role in the transmission of monetary policy. If the transmission were to work asymmetrically for positive and negative shocks, monetary authorities would face a problematic trade-off: a temporary stimulus could boost the economy in the short run, but at the same time sow the seeds of a painful medium-run market reversal (the financial stability dark side" of monetary policy of Stein, 2014). We study the relation between interest rates, credit spreads and output in the U.S. using monthly data and a range of nonlinear dynamic models. We find clear signs of a reduced- form asymmetry, but no evidence in support of the causal mechanism that underpins the `dark side' argument: spreads rise noticeably ahead of economic slowdowns but they do not appear to cause them directly, particularly if they move in response to monetary shocks. This suggests that the asymmetry is best interpreted as a purely predictive relation, with markets being particularly sensitive to bad economic news; and that it creates no complications for monetary policy or for the exit strategy from monetary accommodation.

Inflation in the euro area has been falling steadily since early 2013 and at the end of 2014 turned negative. Part of the decline has been due to oil prices, but the weakness of aggregate demand has also played a significant role. This paper uses a VAR model to quantify the contribution of oil supply, aggregate demand and monetary policy shocks (identified by means of sign restrictions) on inflation in the euro area. The analysis suggests that in the last two years inflation has been driven down by all three factors, as the effective lower bound to policy rates has prevented the European Central Bank from reducing the short-term rates to support economic activity and align inflation with the definition of price stability. Remarkably, the joint contribution of monetary and demand shocks is at least as important as that of oil price developments to the deviation of inflation from its baseline. Country-by-country analysis shows that both aggregate demand and oil supply shocks have driven inflation down everywhere, albeit with varying intensity. The findings stand confirmed after a series of robustness checks.

This paper depicts � from a variety of viewpoints � the degree of indebtedness and potential financial vulnerabilities of households across the Italian regions. Micro-data from several sources suggest that the financial situation of Italian households shows striking differences at geographical level; some of these differences have partly faded in recent years, whereas under other respects no substantial convergence can be detected. The recent evolution has been heterogeneous for the different socio-demographic classes (income quartiles, citizenship, age of the head, etc.), owing to both demand factors from the part of the households, and supply policies from the part of the banks; the latter in particular changed after the inception of the economic and financial crisis.

We investigate the possible existence of asymmetries among Euro Area countries� reactions to the European Central Bank monetary policy. Our analysis is based on a Structural Dynamic Factor model estimated on a large panel of Euro Area quarterly variables. Although the introduction of the euro has changed the monetary transmission mechanism in the individual countries towards a more homogeneous response, we nevertheless find that differences remain between Northern and Southern Europe in terms of prices and unemployment. These results are the consequence of country specific structures, not of European Central Bank policies.

This paper presents evidence of money non-redundancy in shaping Euro Area business cycle. The dynamic effects of liquidity are evaluated by means of an agnostic approach. Results show that shocks to monetary aggregates permanently raise prices, even if to a different degree depending on the time span and the asset components considered, and have a sizeable short-run effect on output. Liquidity shocks account for a non-negligible share of economic fluctuations. Finally, the linkages with financial markets are examined: the effects of liquidity do not vanish when accounting for financial variables such as the external finance premium, housing wealth, price earnings ratios, long term rate and real exchange rate.