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ITALY'S INDUSTRIAL GREAT DEPRESSION: FASCIST PRICE AND WAGE POLICIES

Published online by Cambridge University Press:  15 May 2013

Claire Giordano*
Affiliation:
Bank of Italy
Gustavo Piga
Affiliation:
Università degli Studi di Roma “Tor Vergata”
Giovanni Trovato
Affiliation:
Università degli Studi di Roma “Tor Vergata”
*
Address correspondence to: Claire Giordano, Bank of Italy, Structural Economic Analysis Department, Economic and Financial History Division, Via Nazionale 191, 00184 Rome, Italy; e-mail: claire.giordano@bancaditalia.it.

Abstract

Industrial production and employment in Italy were hard hit by the Great Depression, and remained below trend until at least 1936. Few quantitative studies have been conducted on the causes of Italy's recession and slow recovery. Using monthly data, and reviving an aggregate supply model published in Bernanke and Carey [Quarterly Journal of Economics 111 (1996), 853–883], we empirically test whether Italy's 1930s industrial performance could be related to the Fascist wage and price policies, which, aiming at keeping workers' real wages constant, actually raised firms' labor costs, computed as nominal wages deflated by wholesale prices, hence stalling industrial production. We find evidence of a strong countercyclicality of real wages and of nominal wage stickiness in the period 1929–1936, which would confirm our hypothesis. Trade restrictions are found to play a smaller role in hindering industrial production than previously stated in the literature, whereas we confirm the weak transmission of financial turbulence to the real economy.

Type
Articles
Copyright
Copyright © Cambridge University Press 2013 

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