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Trade Balance and Exchange-Rate for a Small Open Economy during the EMS: The Hellenic Case 1983:1-1995:12

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  • Stamatopoulos Theodoros

    (TEI of Crete, University of Piraeus, Greece & CEFI/Mediterranean University of Aix-Marseille II, France.)

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    Abstract

    We are interested on assessing the effectiveness of the Bank of Greece (BoG) exchange rate policy, to achieve the objective of adjusting balance of payments des-equilibrium, during the period 1983:1-1995:12. The traditional theory of the balance of payments adjustment process through exchange rate changes is used for this purpose. We found evidence, first, about the doubtful effectiveness of this policy due to the marginal verification of the critical elasticities condition; second, about the success of the exchange rate policy in the short-run, since the monthly data of bilateral exchange rates (USD, DEM, ITL, FRF, GBP, JPY) of the Hellenic Drachma (GRD) Granger cause the respective trade balances; third, about the significant co-movement in the series which in the long-run, are driven by the same stochastic trend. We are much aware of the tentative nature of these conclusions. However, our findings suggest that the loss of the exchange rate policy was costly in the case of Hellas because an efficient policy sacrificed by the BoG to the European Central Bank (ECB).

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    File URL: http://128.118.178.162/eps/if/papers/0505/0505012.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series International Finance with number 0505012.

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    Length: 19 pages
    Date of creation: 20 May 2005
    Date of revision:
    Handle: RePEc:wpa:wuwpif:0505012

    Note: Type of Document - pdf; pages: 19. The paper is published from the 'European Research Studies Journal' (EconLit indexed) in 2001, vol.IV, Iss. (3-4), pp.121-139.
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    Web page: http://128.118.178.162

    Related research

    Keywords: Optimum Currency Area; EMS; EMU; Traditional Adjustment Process for Merchandise Payments; Granger Causality; Integration and Co- integration Analysis;

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    1. Sargan, John Denis & Bhargava, Alok, 1983. "Testing Residuals from Least Squares Regression for Being Generated by the Gaussian Random Walk," Econometrica, Econometric Society, vol. 51(1), pages 153-74, January.
    2. 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.
    3. Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers 92-187, University of California at Berkeley.
    4. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    6. Dolado, Juan José & Jenkinson, Tim & Sosvilla-Rivero, Simón, 1990. "Cointegration and Unit Roots," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3321, Universidad Carlos III de Madrid.
    7. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
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