Pressure on the Bank of Italy in the pre-EMU Era (1984-1998)

For a long time Bank of Italy has enjoyed a reputation as a highly independent central bank. We present here an empirical investigation assessing whether this reputation is actually confirmed by the historical record of its decisions on interest rates. Following Havrilesky (1995) methodology, we construct a monthly index of external pressure on Bank of Italy for the period 1984-1998. We check whether BI responded to pressure by estimating Taylor rules augmented with the pressure index. The main conclusion is that in some cases external pressure did affect Bank of Italy’s conduct.