Monetary policy before and after the euro: evidence from Greece

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe model Greek monetary policy in the 1990s and use our findings to address two interrelated questions. First, how was monetary policy conducted in the 1990s so that the hitherto highest-inflation EU country managed to join the euro by 2001? Second, how compatible is the current ECB monetary policy with Greek economic conditions? We find that Greek monetary policy in the 1990s was: (i) primarily determined by foreign (German/ECB) interest rates though still influenced, to some degree, by domestic fundamentals; (ii) involving non-linear output gap effects; (iii) subject to a deficit of credibility culminating in the 1998 devaluation. On the question of compatibility our findings depend on the value assumed for the equilibrium post-euro real interest rate and overall indicate both a reductio n in the pre-euro risk premium and some degree of monetary policy incompatibility. Our analysis has policy implications for the new EU members and motivates further research on fast-growing EMU economies.

Economic Activity, Credit Market Conditions, and the Housing Market

“…Columns [4][5][6][7] show that the cubic speci…cation …ts well to the data. In fact, all the three coe¢ cients in the cubic polynomial speci…cation are highly signi…cant.…”

“…5 By organizing the quarterly data in spells where a spell represents the duration of a boom, a bust or a normal period, denoted by Dur, we are able to identify 59 booms, 31 busts and 59 normal time spells. 6 The majority of the countries experienced booms and busts and, in most of the cases, boom-bust cycles. Moreover, a large group of countries including Denmark, France, Italy, Sweden and UK can be labelled as "repeated boom busters".…”

Greek Sovereign Debt Crisis: Causes, Fiscal Adjustment Programs and Lessons for Croatia

“…Many authors relate the drop in borrowing costs for peripheral countries to the carry trade activities of euro area banks (Hale and Obstfeld, 2014;Buiter and Sibert, 2005). Second, the low interest rate policy pursued by the ECB following the launch of the EMU was not entirely suitable for Greece, which was undergoing a rapid economic expansion (Arghyrou, 2006). Finally, at the time of the creation of the euro, EU policy-makers did not establish an appropriate coordination framework that would steer member states' economic policies and prevent the occurrence of severe imbalances (Brkić and Šabić, 2014).…”

The single monetary policy and domestic macro-fundamentals: Evidence from Spain

“…Hayo and Hoffman (2006) and Arghyrou (2008) address this point by adjusting the constant in equation (2) for a lower equilibrium EMU real interest rate ( EMU r r ) and a target inflation rate equal to the ECB's inflation objective of 2% (π* ECB ). The adjusted constant is given by α adj ≡ EMU r r + (1-β) π* ECB where β is the estimated coefficient of inflation in the pre-euro monetary policy target reaction function.…”

“…European Central Bank 2003, Benalal et al 2006, Campa and Mínguez 2006, Arghyrou et al 2010) have documented significant intra-EMU asymmetries in a number of areas and some divergence between the SMP and national fiscal policies (see Hugh Hallett and Lewis, 2008). Yet, with the exceptions of Hayo and Hofmann (2006) and Arghyrou (2008) 2 they do not provide estimates of any incompatibility between the fundamentals of individual countries and the SMP. Without such estimates it is difficult to assess the scope for intra-EMU conflicts and 1 Empirical research on European monetary policy since 1999 has mainly focused on modelling the preferences of the European Central Bank and comparing them with those of its national predecessors, mainly the Bundesbank (see, among others, Domenech et al 2002 andSurico 2007).…”