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Wage Inflation, Electoral Uncertainty and the Exchange Rate Regime: Theory and UK Evidence

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Author Info
Alogoskoufis, George
Lockwood, Ben
Philippopoulos, Apostolis

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Abstract

We extend the `rational-partisan' model of inflation to allow for the effects of unemployment persistence on the dynamics of inflation. We combine this model with the `exchange-rate-regime' model of inflation and examine the experience of the United Kingdom. Outside the fixed exchange rate regime of Bretton Woods, persistently high inflation can be attributed to the failure of political parties to precommit to price stability, in the light of unemployment persistence. Elections are associated with higher inflation, with the exception of the Thatcher period. There is no evidence that the Labour party is more inflationary in general than the Conservatives.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 657.

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Date of creation: Mar 1992
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Handle: RePEc:cpr:ceprdp:657

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Related research
Keywords: Elections; Exchange Rate Regimes; Inflation; Politics; Unemployment; United Kingdom;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

Cited by:
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  1. George Economides & Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2003. "Electoral Uncertainty, Fiscal Policies and Growth: Theory and Evidence from Germany, the UK and the US," Working Papers 2003_16, Department of Economics, University of Glasgow. [Downloadable!]
  2. George Alogoskoufis & Dong-Ho Lee & Apostolis Philippopoulos, 1998. "Exchange-Rate Regimes, Political Parties and the Inflation-Unemployment Tradeoff: Evidence from Greece," Open Economies Review, Springer, vol. 9(1), pages 39-51, January. [Downloadable!] (restricted)
    Other versions:
  3. Francisco Ledesma-Rodríguez & Jorge Pérez-Rodríguez & Simón Sosvilla-Rivero, 2006. "An empirical examination of exchange-rate credibility determinants in the EMS," Applied Economics Letters, Taylor and Francis Journals, vol. 13(13), pages 847-850, October. [Downloadable!] (restricted)
    Other versions:
  4. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2006. "Are Monetary Rules and Reforms Complements or Substitutes? A Panel Analysis for the World versus OECD Countries," Working Papers 129, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  5. George Economides & Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2003. "Electoral Uncertainty, Fiscal Policies & Growth: Theory and Evidence from Germany, the UK and the US," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. V A Muscatelli & Patrizio Tirelli, 1995. "Institutional Change, Inflation Targets and the Stability of Interest Rate Reaction Functions in OECD Economies"," Working Papers 9606, Department of Economics, University of Glasgow, revised Apr 1996. [Downloadable!]
  7. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2005. "Structural Reforms and the Exchange Rate Regime A Panel Analysis for the World versus OECD Countries," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 263/2005, Department of Economics, University of Hohenheim, Germany. [Downloadable!]
    Other versions:
  8. Anton Muscatelli & Patrzio Tirelli & Carmine Trecroci, 1998. "Does Institutional Change Really Matter? Inflation Targets, Central Bank Reform And Interest Rate Policy In The Oecd Countries," Working Papers 1999_20, Department of Economics, University of Glasgow, revised Jul 1999. [Downloadable!]
    Other versions:
  9. V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 1998. "Institutional Change, Inflation Targeting and the Stability of Interest Rate Reaction Functions," Working Papers 9815, Department of Economics, University of Glasgow, revised Aug 1998. [Downloadable!]
    Other versions:
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