KEYNESIAN THEORY AND PHILLIPS CURVE: THE GREEK CASE

One of the most important problems facing Greece is the long-term and high-level unemployment rate. The Economic Adjustment Programs (EAPs) focused on the supply side of the economy, aiming at the adjustment of prices and wages, which draws from the classical economic model theory. This article attempts to examine whether the Keynesian theory and the Phillips curve, which shows the relationship between unemployment and inflation, apply in the case of the Greek economy. According to the results, there is a negative correlation between unemployment and inflation in Greece, thus confirming the Phillips curve hypothesis, whereas the wage reduction measures and the public spending cut measures taken by the Greek governments over the crisis period are negatively correlated with unemployment, though in the short run, since the restrictive wage and fiscal policy impacts on unemployment are mitigated in the medium run. Therefore, as far as the Greek economy is concerned, it cannot be clearly stated that the Keynesian economic model prevails over the classical economic model.