The Greek Great Depression: a general equilibrium study of its drivers
George Economides
Athens University of Economics and Business
Dimitris Papageorgiou
Bank of Greece
Apostolis Philippopoulos
Athens University of Economics and Business
ABSTRACT
This paper provides a quantitative study of the main determinants of the Greek great depression since 2010. We use a medium-scale DSGE model calibrated to the Greek economy between 2000 and 2009 (the euphoria years that followed the adoption of the euro). Then, departing from 2010, our simulations show that the fiscal policy mix adopted, jointly with the deterioration in institutional quality and, specifically, in the degree of protection of property rights, can explain essentially all the total loss in GDP between 2010 and 2015 (around 26%). In particular, the fiscal policy mix accounts for 14% of the total output loss, while the deterioration in property rights accounts for another 8%. It thus naturally follows that a less distorting fiscal policy mix and a stronger protection of property rights are necessary conditions for economic recovery in this country.
JEL-classifications: O4, H6, E02.
Keywords: Growth, public debt, institutions.
Acknowledgements: We thank Harris Dellas, Heather Gibson, Petros Varthalitis, Vanghelis Vassilatos and Evangelia Vourvachaki for discussions and comments. We also thank Angelos Kyriazis for excellent research assistantship. The second co-author clarifies that the views expressed herein are those of the authors and do not necessarily express the views of the Bank of Greece. Any errors are entirely our own.
Correspondence:
George Economides
Athens University of Economics and Business
76 Patission str.,
Athens 10434, Greece
tel: +30-210-8203729
email: gecon@aueb.gr