Following the two surveys carried out in 2007 and 2009 on firmsi?½ price and wage setting practices, in June 2013 the ESCBi?½s Wage Dynamics Network (WDN) conducted a third survey aimed at assessing, through a harmonised questionnaire, the most important transformations under way in the national labour markets. This paper documents the results of the survey carried out in Italy. The sovereign debt crisis severely hit the Italian economy, causing a collapse in demand, increased uncertainty and difficulties in accessing external finance. Firms responded by decreasing labour input (adjusting both the intensive and the extensive margins) more often than wages. However, wage-setting practices were also affected by the new economic landscape: the percentage of workers employed in firms enacting wage freezes or cuts has steadily increased since 2010, reaching 17% of the total workforce in the sectors considered in 2013. Furthermore, a large share of companies have adapted their pricing strategy to the new economic environment; the frequency of price adjustments has increased, mainly as a reaction to stronger competition.

The volume collects the essays presented at the 15th Workshop on Public Finance organised by Banca d'Italia in Perugia from 4 to 6 April 2013. The workshop focused on the link between fiscal policy and macroeconomic imbalances and comprised four sessions. The first session concentrated on the interaction between fiscal policy and macroeconomic imbalances. The second session dealt with the specific problems of the euro area, where insufficient attention to macroeconomic developments contributed to increase fiscal and financial tensions. The third session scrutinized fiscal policy with an eye to the inequalities of emerging economies and resource-rich countries. The last session analysed the experiences so far and the potential prescriptions about the use of fiscal tools in addressing macroeconomic problems.

This paper reviews the main macroeconomic trends and the debate on policy priorities in Italy since the end of the Nineties. In the decade up to the outbreak of the global crisis (1998-2007), in Italy the reform process came to a virtual standstill; this is partly due to the fragmentation of the political constituency, while a variety of favourable contingent factors masked the difficulties of the productive system. Had Italy been better positioned in terms of public finances and structural features in 2007, some of the adverse effects of the global and sovereign crises would have been avoided.

We measure the share of foreign value added embedded in the domestic consumption expenditure of the Italian household sector as a whole and of households along the distribution of consumption expenditure. We find that for each euro spent for consumption by households, almost irrespective of their affluence, about 20 to 40 cents remunerate foreign production factors; around two fifths of this foreign value added originate in other euro-area countries. Because of their heterogeneous bundles, households consume foreign value added through different expenditure items; less affluent ones do so through price-inelastic varieties and necessities.

The real estate sector is of particular interest from a central bank's perspective; due to its size, it directly and indirectly affects economic developments, financial stability and the monetary policy stance. The volume collects the papers by economists of the Bank of Italy and the discussions by external experts which were presented at the workshop Trends in the housing market: Italy and the international comparison, held in Rome at the Bank of Italy on 20 November 2012. The various contributions are organised in three sections, which respectively deal with the cyclical pattern of the real estate market in Italy, its structural characteristics and the international comparison.

The presence of price stickiness implies that in the short term adjustment to demand or supply shocks takes place through quantities. This paper approaches the issue of nominal price stickiness in Italy by analysing the cross-sectional distributions of the changes in sectoral consumer price indices and the relationships between the moments of such distributions. A preliminary descriptive analysis showed that consumer price cuts are indeed quite rare. The theoretical literature on price rigidity, in particular downwards, suggests some propositions concerning such relationships, which can be empirically tested. In particular, downward price rigidity should imply a positive asymmetric distribution which should become more pronounced as average inflation declines. Consumer price changes in Italy in fact exhibit quite a pronounced positive asymmetry. Moreover, the relative number of months in which the distribution of consumer price changes is right-skewed rises substantially moving from a high to a low inflation environment. On the basis of a Granger-causality analysis we show that, while the asymmetry in the distribution of Italian consumer price changes over the period characterised by high inflation rates was endogenously generated by the presence of adjustment costs, when moderate inflation prevailed the asymmetric behaviour of prices seems to have been due mainly to some form of inherent downward stickiness in the service sector. JEL Codes: E31 Keywords: Prices, Supply

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in 17 European countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices, on average every 15 and 10 months, respectively. Price and, especially, wage adjustment exhibit a substantial degree of time-dependence. In particular, wage changes tend to cluster at a specific time of the year, mostly January in the majority of countries. The results of a multivariate analysis indicate that prices are more flexible when competitive pressures in product markets are strong and when labor costs account for a lower fraction of firms' total costs, whereas wages are more flexible when bargaining is decentralized and when the coverage of collective bargaining and the stringency of employment protection legislation are low. Price rigidities are higher in firms with a larger share of high-skilled/white-collar workers.

The purpose of this paper is to estimate the specific impact of the introduction of the euro on Italian consumer inflation that can be attributed solely to the rounding of prices to figures that are "attractive" in euro. The empirical analysis is based on a large sub-set of prices used by Istat to calculate the general consumer price index for Italy. Between January and October 2002 the general consumer price index rose 2.4%; the impact of rounding on the general consumer price index in Italy amounted to between 0.3 and 0.9 percentage points, depending on the method of estimation used. With reference to the average rise in the general consumer price index of 2.5% in 2002, the impact on average annual consumer price inflation in 2002 lies between 0.1 and 0.5 percentage points. The changeover apparently worked its effect mainly through products sold by traditional retail channels. JEL Codes: E31, F36 Keywords: Consumer Price Index, Inflation, Prices

This paper summarizes the microevidence on the setting of producer prices in the euro area. The main findings are: (i) 21% of producer prices are adjusted each month, (ii) producer prices are changed more frequently and by smaller amounts than consumer prices (even after controlling for product characteristics), (iii) price decreases are relatively frequent, (iv) inflation correlates positively with the difference between the frequency of price increases and decreases, and (v) there is substantial variation in price flexibility across sectors, which can be explained in part by differences in the cost structure, the degree of competition, and the level of sectoral inflation.

The study analyses wage adjustment by Italian firms on the basis of information collected through a coordinated survey carried out in 17 European countries in two waves (at the beginning of 2008 and in the summer of 2009). The pre-crisis evidence indicates that the degree of wage rigidity is relatively high in Italy: wages remain unchanged on average for about two years, against an average of just over one year in the other countries. Italian firms hardly cut nominal wages, reflecting not only institutional constraints, but also an attempt to avoid a negative impact on their productivity. During the economic recession the firms most severely affected by the fall in demand reduced their costs mainly by adjusting the input of labour (in terms of both employment and hours worked). A higher incidence of skilled and white-collar workers was accompanied by greater recourse to strategies aimed at containing non-labour costs, presumably in order to preserve the human capital accumulated.

This paper presents new evidence on the patterns of price and wage adjustment in European firms and on the extent of nominal rigidities. It uses a unique dataset collected through a firm-level survey conducted in a broad range of countries and covering various sectors. Several conclusions are drawn from this evidence. Firms adjust wages less frequently than prices: the former tend to remain unchanged for about 15 months on average, the latter for around 10 months. The degree of price rigidity varies substantially across sectors and depends strongly on economic features, such as the intensity of competition, the exposure to foreign markets and the share of labour costs in total cost. Instead, country specificities, mostly related to the labour market institutional setting, are more relevant in characterising the pattern of wage adjustment. The latter exhibits also a substantial degree of time-dependence, as firms tend to concentrate wage changes in a specific month, mostly January in the majority of countries. Wage and price changes feed into each other at the micro level and there is a relationship between wage and price rigidity.

Developments in the real-estate sector are of crucial importance for the business cycle and financial stability. This study analyses developments in the Italian housing market on the basis of both real and financial variables. Following the sharp contraction of the market during the financial crisis and the more general fall in economic activity, a few signals suggests that the recession in the housing market is easing somewhat. However, the degree of uncertainty remains considerable. In recent months the ratio between the flow of bad debts to total outstanding loans to households and construction firms has reached the highest levels since the beginning of the decade. The paper also investigates three issues of a more structural nature. First, it examines the performance and the regulatory framework of real-estate investment funds in Italy. Second, it analyses the main characteristics of the taxation of residential housing, with reference to ownership, rentals and transactions. Finally, the paper estimates the impact on residential house prices of the growing demand for housing services by immigrants.

This paper investigates the behaviour of consumer and producer prices in Italy using micro data. The frequency of price changes is computed in order to obtain a quantitative measure of the unconditional degree of price rigidity at both the consumption and the production stage. On average, producer prices tend to remain unchanged for around 6 months, whereas consumer prices exhibit a longer duration, of 10 months. A comparison of the price behaviour of similar items confirms that prices are more flexible at the production stage. Prices, however, are not adjusted uniformly across sectors. The duration of producer prices is less for food and non-energy intermediate products and greater for non-food consumer and investment goods. At the consumption stage, price spells are longer for non-energy industrial goods and services, much shorter for energy products. In exploring the possible reasons for the differences, we observe that a higher share of labour in total costs is associated with lower frequency of price adjustment. Moreover, the structure and functioning of the retail sector in Italy may slow price adjustment at the consumption stage, together with other specific economic factors that affect mainly consumer price behaviour, such as menu costs and attractive pricing policies. Copyright © 2009 John Wiley & Sons, Ltd.

This paper traces the main macroeconomic developments in the German economy from national unification. Its performance is compared with that of the rest of the euro area and its largest economies. The study documents as Germany’s modest growth in the later 1990s was due to the restrictive impact on domestic demand coming from the deep restructuring and modernization of the production system, followed by sweeping reforms after the turn of the century. Rapid productivity increases and prolonged wage moderation, especially in industry, fuelled a large and mounting current account surplus in Germany, that compares with the deficits registered in most European countries. The study retraces the recent debate on how to correct those imbalances, recalling the arguments for and against the thesis that the countries with a current payments surplus, above all Germany, must also play an active role in fostering the adjustment of the deficit countries. A possible synthesis is proposed, based on an analysis of the formation of national income and the use of resources according to the national accounts system. The implication is that Germany may contribute to the correction of imbalances within the euro area not so much by altering the wage formation mechanism as by creating incentives for domestic investment, hence fostering employment creation, in the service sectors that are currently lagging behind the extraordinary perfomance of a number of core activities in the industry. JEL Codes: E20, E61, O52

We present a new indicator of house prices in Italy, with more extensive geographical and time coverage. The new indicator now makes it possible to analyze medium- and long-term trends with satisfactory representation of the Italian housing market. It also allows for timely updating, for prompt assessment of housing input both to the business cycle and to inflationary pressures. We offer a preliminary identification, based solely on graphical inspection, of four different property price cycles since the late 1960s; the latest began at the end of the 1990s and signaled a slowdown since 2006. Finally, we tentatively assess the effect of including transactions in dwellings in the Italian HICP basket according to the net acquisition approach, which apparently results in about a quarter point of additional inflation each year since 2000.