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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.)

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).

Suggested Citation

  • Stamatopoulos Theodoros, 2005. "Trade Balance and Exchange-Rate for a Small Open Economy during the EMS: The Hellenic Case 1983:1-1995:12," International Finance 0505012, University Library of Munich, Germany.
  • 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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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0505/0505012.pdf
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    References listed on IDEAS

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    2. 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 153-174, January.
    3. Thomas Willett & Edward Tower, 1970. "Currency areas and exchange-rate flexibility," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 105(1), pages 48-65, September.
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    5. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
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    7. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    8. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-193, January.
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    More about this item

    Keywords

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

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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