Greece's Three-Act Tragedy: A Simple Model of Grexit vs. Staying Afloat inside the Single Currency Area

Yu-Fu Chen and Michael Funke

No 5677, CESifo Working Paper Series from CESifo

Abstract: Against the backdrop of the Greek three-act tragedy, we present a theoretical framework for studying Greece’s recent debt and currency crisis. The model is built on two essential blocks: first, erratic macroeconomic policymaking in Greece is described using a stochastic regime-switching model; second, the euro area governments’ responses to uncertain macroeconomic policies in Greece are considered. The model’s mechanism and assumptions allow either for a Grexit from the euro area or, conversely, the avoidance of Greece’s default against its creditors. The model also offers useful guidance to understand key drivers of the long-winded negotiations between the Syiza government and the euro area governments.

Keywords: Greece; currency crisis; euro; financial assistance programmes (search for similar items in EconPapers)
JEL-codes: F34 F45 H63 (search for similar items in EconPapers)
Date: 2015
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Journal Article: Greece’s Three-Act Tragedy: A Simple Model of Grexit vs. Staying Afloat inside the Single Currency Area (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5677

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