Monetary policy at the periphery during the Classical Gold Standard: Italy (1894-1913)

This project analyzes monetary policy in Italy between 1894 and WWI by focusing on the main Bank of issue at the time (the Banca d'Italia, BdI) and the Treasury. We show that the Treasury set the official rates, and the BdI determined an "effective" rate transmitted to the market by applying different quantities of bills to various rates between the bounds set by the Treasury. We provide an original measure of the BdI's rate based on primary sources. The BdI changed its rate in response to the domestic market rate (although with a milder reaction than the Treasury), the stock of money it printed, and its reserve coverage ratio. Changes in the official discount rates in France and Germany also triggered relatively modest reactions. Neither the exchange rate nor the state of the domestic economy affected the setting of the rate. Until the turn of the century, the Banca d'Italia only targeted corporate goals of profitability and financial soundness, while it also pursued policy aims afterward. In this context, however, the Bank did not maneuver the discount rate directly but somewhat indirectly to accumulate reserves for market interventions.<br>