Pressure on Bank of Italy: Evidence Using a Taylor Rule

Following Havrilesky’s seminal work (1995) and its extension by Maier, et al. (2002) we construct a monthly index of external influences on Bank of Italy’s conduct for the period 1984-1998. This paper describes the index of overall pressure on Italian monetary policy and the five sub-indexes of which it is composed. We evaluate whether Bank of Italy responded to pressure by estimating Taylor rules augmented with the pressure indexes. We conclude that in some cases external pressures did affect Bank of Italy’s action.