We use Greek data during 1960–1994 to test and estimate a model in which wage inflation, price inflation and unemployment depend on the exchange rate regime, the identity of the political party in power and whether an election is expected to take place. We respect the Lucas critique 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-Gordon type inflation bias due to the inability of all policymakers to precommit to low inflation. (ii) There are no Barro-Gordon type partisan differences in inflation or unemployment.
Open Economies Review (with Dong-Ho Lee and Apostolis Philippopoulos)