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The Impact of the European Economic & Monetary Union on the Stability of the Greek Economy

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  • Eleni Roussou
  • Norman Cameron
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    Abstract

    This paper addresses the issue of how the stability of the Greek economy will be affected by Greece’s accession to the European Economic and Monetary Union (EMU). The theoretical basis for most of the discussion of this issue to date is found in the theory of optimum currency areas (OCA), which identifies the nature of economic disturbances as key to whether currency unions provide a net benefit. We use vector autoregression to identify the nature of the disturbances that the Greek economy has experienced in the past, and add such disturbances to stochastic simulations of a structural macroeconomic model of the Greek economy, part of a larger model of the European economy known as QUEST II. The main conclusion is that the EMU will make output slightly more stable in the Greek economy. Therefore, the Greek economy will reap the efficiency gains of the common currency without suffering significantly from the elimination of its monetary sovereignty.

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    Bibliographic Info

    Article provided by European Research Studies Journal in its journal European Research Studies Journal.

    Volume (Year): VIII (2005)
    Issue (Month): 1-2 ()
    Pages: 85-98

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    Handle: RePEc:ers:journl:v:viii:y:2005:i:1-2:p:85-98

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    Related research

    Keywords: EMU; Greek Economy; optimum currency areas; economic stability;

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    1. Tamim Bayoumi & Alun Thomas, 1995. "Relative Prices and Economic Adjustment in the United States and the European Union: A Real Story about EMU," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 108-133, March.
    2. Herbert G. Grubel, 1970. "The Theory of Optimum Currency Areas," Canadian Journal of Economics, Canadian Economics Association, vol. 3(2), pages 318-24, May.
    3. Barry Eichengreen, 1991. "Is Europe an Optimum Currency Area?," NBER Working Papers 3579, National Bureau of Economic Research, Inc.
    4. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
    5. Barry Eichengreen., 1990. "One Money for Europe? Lessons from the US Currency Union," Economics Working Papers 90-132, University of California at Berkeley.
    6. Thomas Willett & Edward Tower, 1970. "Currency areas and exchange-rate flexibility," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 105(1), pages 48-65, September.
    7. Gabriele Giudice & Alessandro Turrini & Jan in 't Veld, 2003. "Can fiscal consolidations be expansionary in the EU? Ex-post evidence and ex-ante analysis," European Economy - Economic Papers 195, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    8. De Grauwe, Paul, 1992. "German monetary unification," European Economic Review, Elsevier, vol. 36(2-3), pages 445-453, April.
    9. Sergio Nardis & Alessandro Goglio & Marco Malgarini, 1996. "Regional specialization and shocks in Europe: Some evidence from regional data," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 132(2), pages 197-214, September.
    10. Christodoulakis, Nicos & Dimelis, Sophia P & Kollintzas, Tryphon, 1995. "Comparisons of Business Cycles in the EC: Idiosyncracies and Regularities," Economica, London School of Economics and Political Science, vol. 62(245), pages 1-27, February.
    11. Bofinger, Peter, 1994. "Is Europe an Optimum Currency Area?," CEPR Discussion Papers 915, C.E.P.R. Discussion Papers.
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