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1979–2001: A Greek great depression through the lens of neoclassical growth theory

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  • Gogos, Stylianos G.
  • Mylonidis, Nikolaos
  • Papageorgiou, Dimitris
  • Vassilatos, Vanghelis

Abstract

This paper focuses on the performance of the Greek economy during the period 1979–2001. Following the work of Cole and Ohanian (1999) and Kehoe and Prescott (2002, 2007) this twenty year episode can be characterized as a great depression. We use this methodology and ask whether, given the observed exogenous path of total factor productivity (TFP), the neoclassical growth model can generate an equilibrium behavior that has growth accounting characteristics similar to those in the data. The answer is affirmative: Changes in TFP are crucial in accounting for the Greek great depression. Our model economy predicts a big decline of economic activity during the 80s and until the mid-90s and a strong recovery for the period 1995–2001. This is exactly what happened in Greece. Moreover, the model successfully mimics the actual data with respect to the timing of peaks and troughs and the time paths of most key macroeconomic variables. However, puzzles between theory's predictions and the observed data are not missing. For instance, things are (not surprisingly for the neoclassical growth model) less successful when it comes to the labor factor.

Suggested Citation

  • Gogos, Stylianos G. & Mylonidis, Nikolaos & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2014. "1979–2001: A Greek great depression through the lens of neoclassical growth theory," Economic Modelling, Elsevier, vol. 36(C), pages 316-331.
  • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:316-331
    DOI: 10.1016/j.econmod.2013.09.031
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    References listed on IDEAS

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    1. Fumio Hayashi & Edward C. Prescott, 2004. "The 1990s in Japan: a lost decade," Chapters, in: Paolo Onofri (ed.), The Economics of an Ageing Population, chapter 2, Edward Elgar Publishing.
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    5. Angelopoulos, Konstantinos & Philippopoulos, Apostolis & Vassilatos, Vanghelis, 2009. "The social cost of rent seeking in Europe," European Journal of Political Economy, Elsevier, vol. 25(3), pages 280-299, September.
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    9. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    10. Kollintzas, Tryphon & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2012. "An Explanation of the Greek Crisis: "The Insiders - Outsiders Society"," CEPR Discussion Papers 8996, C.E.P.R. Discussion Papers.
    11. Timothy J. Kehoe & Edward C. Prescott, 2002. "Great Depressions of the Twentieth Century," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 1-18, January.
    12. Papageorgiou, Dimitris, 2012. "Fiscal policy reforms in general equilibrium: The case of Greece," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 504-522.
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    14. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, issue win, pages 2-24.
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    Citations

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    Cited by:

    1. Dimitris Papageorgiou, 2014. "BoGGEM: a dynamic stochastic general equilibrium model for policy simulations," Working Papers 182, Bank of Greece.
    2. repec:eee:poleco:v:53:y:2018:i:c:p:59-83 is not listed on IDEAS
    3. repec:spr:izalpo:v:7:y:2018:i:1:d:10.1186_s40173-017-0093-1 is not listed on IDEAS
    4. Varthalitis, Petros, 2019. "FIR-GEM: A SOE-DSGE Model for fiscal policy analysis in Ireland," Papers WP620, Economic and Social Research Institute (ESRI).
    5. Malmaeus, J. Mikael & Alfredsson, Eva C., 2017. "Potential Consequences on the Economy of Low or No Growth - Short and Long Term Perspectives," Ecological Economics, Elsevier, vol. 134(C), pages 57-64.
    6. Stylianos G. Gogos & Dimitris Papageorgiou & Vanghelis Vassilatos, 2018. "Rent seeking activities and aggregate economic performance - the case of Greece," Working Papers 252, Bank of Greece.
    7. Tryphon Kollintzas & Dimitris Papageorgiou & Efthymios Tsionas & Vanghelis Vassilatos, 2018. "Market and political power interactions in Greece: an empirical investigation," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-43, December.
    8. Kollintzas, Tryphon & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2018. "Market and political power interactions in Greece: A theory," European Journal of Political Economy, Elsevier, vol. 53(C), pages 59-83.

    More about this item

    Keywords

    Depression; Greece; Growth accounting; Total factor productivity; Dynamic general equilibrium;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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