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Exchange-Rate Regimes, Inflation and Credibility: Evidence from Greece

In: Economic Integration

Author

Listed:
  • George S. Alogoskoufis
  • Apostolis Philippopoulos
  • Vanghelis Vassilatos

Abstract

Recent theories of inflation stress how the limited ability of policy makers to commit themselves to price stability results in high inflation without any employment benefits. This has been shown by Barro and Gordon (1983) in a sequential move game between wage setters and a central bank along the Phillips curve. An important extension of this model is the exchange rate regime model of Giavazzi and Giovannini (1987) and Giavazzi and Pagano (1988). These authors have shown that participation in a regime of exchange rate commitments can give an institutional solution to the inefficient Barro-Gordon outcome.2 In particular, participation in a regime of fixed exchange rates, in which monetary policy is determined by an inflation-averse core country, ties the hands of domestic policy makers. This is reflected in wage-setters’ expectations, and so the domestic economy ends up with the same average inflation as the core country.3

Suggested Citation

  • George S. Alogoskoufis & Apostolis Philippopoulos & Vanghelis Vassilatos, 2002. "Exchange-Rate Regimes, Inflation and Credibility: Evidence from Greece," Palgrave Macmillan Books, in: George M. Korres & George C. Bitros (ed.), Economic Integration, chapter 6, pages 91-102, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-62925-7_6
    DOI: 10.1057/9780230629257_6
    as

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