What was the role of monetary policy in the greek financial crisis?.
Authors
Edward Seyler
John Levendis
Keywords:
Greece, Monetary Policy, Bank of Greece, E00, E50, E58
Abstract
To what extent is Greece’s current economic crisis the result of monetary policy
misalignment between the European Central Bank and Greece? We use a risk
adjusted
Taylor Rule to examine Greece’s monetary policy from 1993 to the present.
We argue that the monetary policy of the Bank of Greece satisfies several criteria
for a good monetary policy. The monetary policy of the ECB, on the other hand,
exhibits characteristics that suggest it had a destabilizing effect on the economy
of Greece. That is, whereas the ECB could have balanced excessive fiscal stimulus
with a contractionary monetary policy, the ECB’s actual expansionary monetary
policy may have reinforced the fiscal stimulus and led to further destabilization.