Exchange-rate policy, institutions and wages: A macroeconomic quasi-experiment from Italy, 1997–2000

This paper performs a macroeconomic quasi-experiment with individual data to study how the fixed exchange-rate policy implemented in Italy between 1997 and 2000, by itself or in combination with the institutional setting, affected the growth rate of real wages among resident workers. Accounting for both observed and unobserved individual characteristics through the Difference-in-Differences estimator, we find that the fixed exchange-rate policy reduced the growth rate of real wages in the private sector, relative to the counterfactual of a flexible exchange-rate policy, which is simulated through comparable micro data from the United Kingdom. Evidence of heterogeneous treatment effects across sectors and industries is also presented.