Discussion paper

DP547 Political Parties, Elections and Inflation in Greece

We extend the `rational partisan model' of inflation and unemployment by introducing inflation and unemployment dynamics. We investigate the case of Greece, which has had a polarized political system and a problem of persistently high inflation in the last two decades. High inflation can be attributed to the failure of political parties to precommit to price stability. The greater aversion of `socialists' to unemployment results in an inflation rate which is higher by five percentage points than under the more anti-inflationary `conservatives'. Unemployment seems to be independent of the identity of the party in power, and post-election years do not seem to be characterized by systematic mistakes on the part of wage setters as predicted by recent partisan theories.


Alogoskoufis, G and A PHILIPPOPOULOS (1991), ‘DP547 Political Parties, Elections and Inflation in Greece‘, CEPR Discussion Paper No. 547. CEPR Press, Paris & London. https://cepr.org/publications/dp547