Introduction

Two important events give a distinctive character to the last 40 years of the History. First, between the sixties and seventies and, again, between the seventies and eighties, the monetary regime went through two drastic changes, which involved the formulation of the intermediate and final objectives of monetary policy. Second, during the eighties, BI was no longer submissive to the political system. Consequently, for the first time and for a long period afterwards, monetary policy was in conflict with fiscal policy.

In this chapter, we deal with the years 1950 to 1969, during which monetary policy was tailored to a longer-term strategy, at least in the first decade; was able to guarantee an almost absolute price stability; and contributed to regular and sustained economic development. Chapter 8 will examine the seventies during which monetary policy privileged the short over the long horizon; was not only incapable of counteracting domestic and international shocks, but was in itself a cause of instability; and contributed to an inflationary process that had no precedents in peacetime. The monetary authorities did not pursue price stability; instead they favoured employment as its primary target. Furthermore, they acquiesced to a regime of fiscal dominance by developing a new intermediate objective that gave virtually absolute priority to government lending. Chapter 9 deals with the eighties and will give insight into the nature of the second drastic change, a counterrevolution which produced a number of innovations in the conflict of monetary policy, but most significantly gave the monetary authorities independence from the fiscal authorities.

We begin with an analysis of the evolution of some key variables to underscore the structural break at the end of the sixties.