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The analytics of the greek crisis

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  • Gourinchas, PO
  • Philippon, T
  • Vayanos, D

Abstract

We provide an empirical and theoretical analysis of the Greek crisis of 2010. We first benchmark the crisis against all episodes of sudden stops, sovereign debt crises, and lending booms/busts in emerging and advanced economies since 1980. The decline in Greece’s output, especially investment, is deeper and more persistent than in almost any crisis on record over that period. We then propose a stylized macrofinance model to understand what happened. We find that a severe macroeconomiCadjustment was inevitable given the size of the fiscal imbalance; yet, a sizable share of the crisis was also the consequence of the sudden stop that started in late 2009. Our model suggests that the size of the initial macro/financial imbalances can account for muchof the depthof the crisis. When we simulate an emerging-market sudden stop withinitial debt levels (government, private, and external) of an advanced economy, we obtain a Greek crisis. Finally, in recent years, the lack of recovery appears driven by elevated levels of nonperforming loans and strong price rigidities in product markets.

Suggested Citation

  • Gourinchas, PO & Philippon, T & Vayanos, D, 2016. "The analytics of the greek crisis," Department of Economics, Working Paper Series qt2cg7m1gf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  • Handle: RePEc:cdl:econwp:qt2cg7m1gf
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    More about this item

    Keywords

    Economics; Economic Theory;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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