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Monetary policy before and after the euro: evidence from Greece



We 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 reduction 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.
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Suggested Citation

  • Michael Arghyrou, 2009. "Monetary policy before and after the euro: evidence from Greece," Empirical Economics, Springer, vol. 36(3), pages 621-643, June.
  • Handle: RePEc:spr:empeco:v:36:y:2009:i:3:p:621-643 DOI: 10.1007/s00181-008-0216-z

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    References listed on IDEAS

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    Cited by:

    1. Michael G. Arghyrou & John D. Tsoukalas, 2011. "The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes," The World Economy, Wiley Blackwell, vol. 34(2), pages 173-191, February.
    2. Arghyrou, Michael G. & Gadea, Maria Dolores, 2012. "The single monetary policy and domestic macro-fundamentals: Evidence from Spain," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 16-34.
    3. repec:eee:ecmode:v:67:y:2017:i:c:p:10-22 is not listed on IDEAS
    4. Mihai Rebiga, 2010. "Is Romania Ready for Adopting Euro?," Studies and Scientific Researches. Economics Edition, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, issue 15.
    5. Tomáš Heryán & Panayiotis G. Tzeremes & Roman Matousek, 2016. "European lending channel: differences in transmission mechanisms due to the global financial crisis," Working Papers 0027, Silesian University, School of Business Administration.
    6. Mislav Brkic, 2016. "Greek Sovereign Debt Crisis: Causes, Fiscal Adjustment Programs and Lessons for Croatia," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 18(1), pages 71-99, June.
    7. Tomáš Heryán & Iveta Palečková & Nemanja Radić, 2015. "Comparison of monetary policy effects on lending channel in EMU and non-EMU countries: Evidence from period 1999-2012," Working Papers 0003, Silesian University, School of Business Administration.
    8. Fredj Jawadi & Ricardo M. Sousa, 2012. "Consumption and Wealth in the US, the UK and the Euro Area:A Nonlinear Investigation," NIPE Working Papers 24/2012, NIPE - Universidade do Minho.

    More about this item


    Monetary policy; Non-linear; Compatibility; Greece; EMU; C51; C52; E43; E58; F37;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications


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