EXCHANGE-RATE REGIMES, POLITICAL-PARTIES AND THE INFLATION-UNEMPLOYMENT TRADEOFF - EVIDENCE FROM GREECE

We use Greek data during 1960-1994 to test and estimate a model in whi ch wage inflation, price inflation and unemployment depend on the exch ange rate regime, the identity of the political party in power and whe ther an election is expected to take place. We respect the Lucas criti que and take into account the statistical properties of the data. The main results are: (i) The exchange rate regime matters for inflation. After the fall of the Bretton Woods regime in 1972, there is a Barro-G ordon type inflation bias due to the inability of all policymakers to precommit to low inflation. (ii) There are no Barro-Gordon type partis an differences in inflation or unemployment.