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Monetary policy before and after the euro: evidence from Greece

Arghyrou, Michael Georgiou 2008. Monetary policy before and after the euro: evidence from Greece. Empirical Economics 36 (3) , pp. 621-643. 10.1007/s00181-008-0216-z

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Abstract

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 ECB monetary policy with Greek economic conditions? We find that Greek monetary policy in the 1990s was: (i) primarily determined by German/ECB interest rates, though still influenced 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.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
J Political Science > JN Political institutions (Europe)
Uncontrolled Keywords: Monetary policy ; Non-linear ; Compatibility Greece ; EMU
Publisher: Springer
ISSN: 0377-7332
Last Modified: 04 Jun 2017 03:18
URI: http://orca.cf.ac.uk/id/eprint/19581

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