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The ECB's policy, the Recovery Fund and the importance of trust and fiscal corrections: The case of Greece

Vasiliki Dimakopoulou, George Economides and Apostolis Philippopoulos

Economic Modelling, 2022, vol. 112, issue C

Abstract: Using a microfounded macroeconomic model that embeds the key features of the Greek economy, we study the efficacy of the various policy measures taken, at national and European Union level, to cushion the effects of the pandemic shock. Special attention is given to the nexus between fiscal and quantitative monetary policies in the context of the Eurosystem. The paper shows that the fiscal stimulus of the Greek government, jointly with the financial assistance provided by the European Union's Recovery Fund and the European Central Bank's pandemic-related policies, have helped Greece to avoid the worse. However, our results also show that trust is important because, if the fear of debt default and risk premia re-emerge, the effects will be detrimental. Finally, the lack of some kind of corrective fiscal measures once the pandemic is over will lead to explosive dynamics for public debt.

Keywords: Central banking; Fiscal policy; International lending; Pandemic; Greece (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:112:y:2022:i:c:s026499932200092x

DOI: 10.1016/j.econmod.2022.105846

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