Public expenditure and national income - Time series evidence from Greece

The paper investigates the existence and nature of long-run relationships between Greek national income and four categories of public expenditure. Our results suggest that there exists a positive long-run relationship between GDP on the one hand; and public expenditure and “productive” public consumption on the other, with causality running both ways. There appears to be no long-run relationship between GDP and public-sector personnel expenditure; and GDP and public-debt service expenditure. From that point of view, it would appear that in terms of output growth, the fiscal policy followed by Greece during the 1975-1990 period has rather been ineffective

Debt sustainability, structural breaks and non-linear fiscal adjustment: A testing application to Greek fiscal policy

Non-linear public debt adjustment and structural breaks in fiscal policy may affect tests of public debt sustainability. Existing studies address these issues separately. No study has considered both. We address this gap by focusing on Greece, one of the most highly-indebted EMU countries. We find evidence of previously undetected non-linear fiscal adjustment; and two structural breaks in fiscal policy. Excluding these from the analysis, or allowing for non-linearities only, affects the nature of the empirical findings. Accounting for both, we find Greek public debt to be sustainable. This is in contrast to the findings of previous studies on Greece

Exchange Rate Pegging: Credibility and Fundamentals. Evidence from Greece

The paper examines the predictability of a currency-peg collapse on the basis of the movements of underlying fundamentals and the observed behaviour of currency markets. Our findings suggest that the ultimate collapse of a peg is predictable if the peg is inconsistent with valid long-run macroeconomic relationships. A strong currency policy is confirmed to be helpful in terms of reducing inflation but its prolonged implementation reduces the peg’s credibility. In the case-study examined, markets appear to have anticipated the peg’s collapse almost a year before it occurred. However, the results show that the exact timing of the devaluation took markets by surprise. Even under conditions of devaluation expectations, central banks have the capacity to surprise the markets

Competitiveness and the external trade performance of Greece in the 1990s: a cross-sectoral investigation.

We examine Greece’s external trade following accession to the EU, placing particular emphasis on the 1990s. A large part of our analysis is based on unpublished, disaggregated data sets. Our main findings are: (i) in the 1990s Greece sustained heavy competitiveness losses in those sectors where she traditionally held a comparative advantage; (ii) Greek trade becomes increasingly intra-industry, especially in those sectors where Greece holds a comparative advantage; (iii) regarding imports, EU participation has caused mutually offsetting, stable over time, trade creation for the EU and trade diversion for third countries; (iv) EU participation has not boosted Greek exports. A negative structural break in exports to the Netherlands and Germany (Greece’s most important exporting market) has occurred in the 1990s (v) Demand for Greek exports is highly sensitive to movements of the real exchange rate and presents high income-elasticity. Hence, the deterioration of Greece’s trade deficit in the 1990s is related to the strong-drachma policy and unfavourable external conditions. Overall, our findings indicate that the real sector of the Greek economy has not yet closed the performance gap dividing it from the EMU’s hard core. JEL Classification: F02, F10, F15 Keywords: Greece, EU, trade, competitiveness, 1990s. We would like to thank Christos Ioannidis, Yannis Georgellis and Kul Luintel for useful suggestions and comments. The usual disclaimer applies. *Corresponding author: Michael Arghyrou, Department of Economics and Finance, Brunel University, Uxbridge, London, UB8 3PH; United Kingdom. – e-mail: [email protected]

Government solvency: revisiting some EMU countries

Corsetti and Roubini (1991) reported that the government finances of Greece, Ireland, Italy and the Netherlands did not satisfy the intertemporal budget constraint (IBC). We re-examine this issue by utilizing a new empirical approach and extended data set. Structural shifts, an issue which Corsetti and Roubini were unable to address due to the lack of suitable econometric methods, are tackled. We show that: (i) government finances of all four countries satisfy the IBC and this finding is robust to different time horizons; (ii) multiple structural shifts, most of which correspond to important policy changes, did occur in the fiscal path of these countries; and (iii) the overall effect of structural shifts has been to strengthen the evidence supporting IBC. We also find a clear positive Maastricht effect on IBC

Non linear inflationary dynamics: evidence from the UK

This paper estimates a variety of models of inflation using quarterly data for the UK between 1965 and 2001. We find strong evidence that the persistence of inflation is nonlinear and that inflation adjusted more rapidly in periods of macroeconomic stress such as the mid-1970s, the early 1980s and the late 1980s-early 1990s. Our results imply that inflation will respond more strongly and more rapidly to changes in interest rates when the price level is further away from the steady state level. This has implications for optimal monetary policy

Non-linear and non-symmetric exchange-rate adjustment: new evidence from medium and high inflation countries

This paper analyses a model of non-linear exchange rate adjustment that extends the literature by allowing asymmetric responses to over- and under-valuations. Applying the model to Greece and Turkey, we find that adjustment is asymmetric and that exchange rates depend on the sign as well as the magnitude of deviations, being more responsive to over-valuations than under-valuations. Our findings support and extend the argument that non-linear models of exchange rate adjustment can help to overcome anomalies in exchange rate behaviour. They also suggest that exchange rate adjustment is non-linear in economies where fundamentals models work well

“Core” and “Periphery” in a Monetary Union: A Macroeconomic Policy Game

Monetary union, Asymmetric union, Dynamic game, Numerical solutions, Nash equilibrium, Pareto solution, Fiscal policy, Monetary policy, Policy cooperation,