Sources of Macroeconomic Fluctuations in a Small Open Economy: The Case of Greece

Georgios Karras

Economia Internazionale / International Economics, 1994, vol. 47, issue 1, 34-50

Abstract: This paper uses the structural VAR approach to examine the importance of different types of shocks for the macroeconomic fluctuations in Greece. Monetary and aggregate demand shocks are found to dominate output variability in the short run, and aggregate supply shocks in the long-term. Monetary expansions have positive effects on output initially, but they reduce output in the end. The same is true for positive shocks to the exchange rate (depreciations of the drachma). Unfavorable supply shocks, higher money growth, and depreciations also contribute to inflation. Fiscal expansions put significant pressure on the money supply but have negligible effects on the other variables. This, however, shows a conflict between fiscal and monetary policies.

Date: 1994
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