The Clash of Central Bankers with Labour Market Insiders, and the Persistence of Inflation and Unemployment

This paper analyses the implications of monetary policy for the dynamic behaviour of inflation, in a ‘natural’ rate model characterized by endogenous unemployment persistence. We present evidence for the main industrial economies which suggests that inflation displays persistence which is of the same order of magnitude as the persistence of deviations of unemployment from its ‘natural’ rate. We provide a theoretical explanation of this fact based on a model of the dynamic interactions between central bankers and labour market insiders. The clash in the objectives of central bankers and labour market insiders is what causes both inflation and unemployment to display the same degree of persistence in this model. The analysis suggests that inflation persistence could be addressed in a welfare-improving way, if central banks adopted monetary policy rules that targeted unanticipated changes in unemployment rates instead of deviations of unemployment from its ‘natural’ rate.

Economica, Early View, 15 May 2017

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Exchange Rate Regimes, Inflation and Credibility: Evidence from Greece

We investigate how exchange rate regimes affect the anti-inflationary credibility of monetary policy in Greece. The evidence suggests a positive impact of a fixed exchange rate regime to anti- inflationary credibility.

(with Philippopoulos A. and V. Vassilatos), in Korres, G.M. and Bitros, G.C. (eds.) Economic integration: Limits and prospects. Palgrave, Houndmills (2002).

This book is intended to provide a basic understanding of current issues and problems of economic integration. Identifying economic integration as one of the main features of modern international economics, the authors examine many aspects and consequences of economic integration which remain obscure and unexplored. After addressing general issues regarding with economic integration, the authors include empirical and theoretical analyses of the monetary union, social policy reform, social union, a public finance, and technological policies.

The Bank of Greece and Inflation: Independence and Democratic Accountability

This paper deals with the question of central bank independence and inflation control, with special reference to the Bank of Greece. After a brief discussion of the history of the Bank of Greece, it surveys current theories of inflation and the literature on the role of the anti-inflationary credibility of monetary policy. It then proceeds to define economic and political independence, with special reference to the problem of inflation and democratic accountability. It concludes that as a result of reforms in the early 1990s the Bank of Greece is already by and large economically independent. However, more needs to be done to make it politically independent as well. The paper suggests the directions of a political initiative to grant political independence to the Bank of Greece.


in Demopoulos G.D., Korliras P.G. and Prodromidis K.P. (eds), Essays in Economic Analysis (in Honor of Professor Theocharis), Athens, Sideris.

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 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)

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Inflationary expectations, political parties and the exchange rate regime: Greece 1958-1989

We investigate the applicability of the ‘rational partisan’ and ‘exchange rate regime’ models of inflation to the case of Greece. Greece has fully participated in the Bretton Woods system of gxed exchange rates until 1972, but has since followed an independent ‘crawling peg’ policy. It has had a polarized political system and a problem of persistently high inflation in the last two decades. Outside fixed exchange rate regimes, persistently high inflation can be attributed to the failure of political parties to pre-commit to price stability. The higher aversion of ‘socialists’ to unemployment results in an inflation rate which is higher by 8 percentage points than under the more anti-inflationary ‘conservatives’. Unemployment is independent of the identity of the party in power and elections.

European Journal of Political Economy (with Apostolis Philippopoulos)

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Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence

Section I presents a model of the inflationary process based on staggered contracts. This suggests that if monetary and exchange rate policy accommodates price shocks to maintain the level of real aggregate demand and the level of international competitiveness, then it will affect the expectations of wage and price setters, and will result in a higher persistence of inflation. Section I1 presents evidence that in periods of fiduciary standards and managed exchange rates there has indeed much higher persistence of global inflation and inflation differentials than in the period of the classical gold-standard and Bretton Woods. Monetary accommodation of average price shocks at the global level has also been much higher outside the latter two regimes, and exchange rate accommodation of relative price shocks has been very high in regimes of managed exchange rates. The final section summarises the conclusions and briefly discusses the implications of the findings for international monetary and exchange rate regimes.

The Economic Journal

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Fiscal Policies, Devaluations and Exchange Rate Regimes: The Stabilization Programs of Ireland and Greece

This paper contrasts the stabilization programs of Ireland and Greece in the 1980s and draws conclusions for the design of such programs in small open economies. Programs relying on government revenue increases are less likely to succeed than those based on expenditure reductions. The paper also emphasizes the contribution which a devaluation can make in the initial stages of such a program, but argues that this can only be effective in the context of a regime with established anti-inflationary credibility.

Economic and Social Review, 23, pp. 225-246 (April 1992).

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