Monetary policy before and after the euro: Evidence from Greece

Michael Arghyrou

No E2006/26, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

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 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.

Keywords: monetary policy; reaction function; non-linear; compatibility; Greece; EMU (search for similar items in EconPapers)
JEL-codes: C51 C52 E43 E58 F37 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2006-11
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Empirical Economics , vol. 36, June 2009, 621-643.

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Journal Article: Monetary policy before and after the euro: evidence from Greece (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cdf:wpaper:2006/26

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