This paper analyses the functioning of monetary policy transmission mechanisms in Italy from 1984 to 1998, highlighting the role performed by the credit system. We extend the Bernanke and Blinder model (1988) to the case of an open economy under a quasi-fixed exchange rate regime, deriving analytically the conditions for the functioning of the three monetary policy channels generally identified in the literature (“money”, “exchange rate” and “credit”). These conditions explain the partial effectiveness of monetary policy in reaching price and income targets, while maintaining external equilibrium. By means of a structural VAR analysis, we evaluate the effectiveness of the transmission of monetary policy through the three channels.
Published in 2004 in: German Economic Review, v. 5, 1, pp. 1-34
