BEYOND THE TRADITIONAL PHILLIPS CURVE: GROWTH, PROFIT RATES, AND INFLATION DYNAMICS IN GREECE ACROSS MONETARY REGIMES

This study has a twofold objective: 1) to examine the effects of the “growth-utilization rate” (the rate of growth over the rate of profit) on inflation, and 2) to investigate the empirical performance of the Phillips curve on the same subject. The estimations refer to Greece for the period 1961-2022. The relationship between the “growth-utilization rate” and inflation is examined by applying the statistical method of “transfer entropy” and an ARDL model. We also employ linear regression and multiple econometric specifications to examine the stability and structural changes in the relationship between inflation and unemployment. The empirical analysis reveals significant effects of past inflation and the growth-utilization rate on current inflation, both in terms of short-term effects and long-term coefficients. In contrast, there is considerable variation in the Phillips curve across different economic periods, with substantial evidence of regime-dependent parameters. In short, the Phillips curve relationship is neither stable nor linear across different economic policies and monetary regimes. Overall, the empirical analysis has important implications for the efficiency of monetary policy inside a currency union and for a better understanding of labor market dynamics during a severe economic recession.