Merging the purchasing power parity and the Phillips curve literatures: Regional Panel Data evidence from Italy

The main purpose of this article is to merge together two strands of the literature regal-ding, either directly or indirectly, inflation-specifically, the purchasing power parity and the Phillips curve ones. To accomplish this task, this contribution applies the tools Of Dynamic Panel Data estimation on a sample of eighty one Italian provinces from the year 1986 to the year 1998, exploiting cross-sectional variation to avoid using instruments not directly connected with the inflation-generating process. This research strategy allows us to conclude that inflation is characterized by a low degree of persistence and by conditional beta-convergence across provinces. Its most suitable driving variable is the unemployment rate, and there are long-term nonneutralities at the regional level