Italy initially struggled to control both exchange rate and monetary growth,  but the 1981 ‘divorce’ and further financial reform laid the basis for the pursuit of monetary targets with exchange rate and eventually also inflation targets, which allowed Italy to enter EMU in 1999.


Years Targets and attainment Classification
1974-78 exchange rate in managed float (after exit from Snake in February 1973) with repeated depreciations; total domestic credit TDC targets from 1975 mostly overshot; monetary policy operated partly through bank lending ceilings, but major problem of fiscal dominance unstructured discretion UD
1979-87 membership of EMS on wider (6%) margins, with devaluations in 1979, 1981 (twice), 1982, 1983, 1985, 1986, and 1987; monetary targets (initially TDC, from 1984 credit to private sector and money supply M2) mostly met or near-met; fiscal dominance reduced by 1981 ‘divorce’ between central bank and treasury, but large deficits continue; bank lending controls abolished 1983 as part of shift towards indirect monetary instruments monetary with exchange rate targeting MwERT
1988-92 more emphasis on exchange rate, with only small ‘technical devaluation’ and move to narrow EMS margins 1990; monetary targets met or near-met; fiscal dominance reduced further by late 1980s changes to government bond market, but large deficits continue monetary and exchange rate targeting M&ERT
1993-94 out of EMS (September 1992) but continued attention to exchange rate, monetary targets met or undershot loose monetary targeting LMT
1995-96 continued attention to exchange rate; monetary targets met or undershot; inflation targets first announced mid-1995 (without full standard IT arrangements), met monetary and inflation targeting M&IT
1997-98 return to EMS (November 1996), inflation targets met, monetary targets met exchange rate and monetary and inflation targeting ER&M&IT
1999-2017 membership of European Monetary Union currency union CU

Selected IMF references: RED 1977 pp36-9; SR 1977 pp16-21; RED 1981 pp65-6; RED 1985 pp56-61; RED 1989 pp75-7; RED 1992 pp33-5, 52; SR 1994 pp2-3, 12-14; SR 1996 pp15-16.

Additional sources: Houben (2000, especially pp217-21, 314-15); Cobham, Cosci and Mattesini (2008); Chiorazzo and Spaventa (1999).

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