Dimitris Papageorgiou
Bank of Greece

Stylianos Tsiaras
European University Institute


This paper follows the great depression methodology of Kehoe and Prescott (2002, 2007) to study the importance of total factor productivity (TFP) in the Greek economic crisis over the period 2008-2017. Using growth accounting and the neo- classical growth model, the paper shows that exogenous changes in TFP are crucial for the Greek depression. The theoretical model reproduces quite well the decline in economic activity over 2008-2013 and the subsequent period of slow recovery found in the data. Nevertheless, it is less successful in predicting the magnitude of the decline in output and the labour factor. In addition, including financial frictions and risk shocks into the neoclassical growth model, does not significantly improve the model’s performance.

JEL-classification: D81, G01, G21, G33, E44, E52, E58
Keywords: Great Depression, Greece, Growth Accounting, DSGE

Acknowledgement: This study was conducted under the Bank of Greece’s research programme of cooperation with universities. Tsiaras would like to thank Heather Gibson for the great support and hospitality during his stay at the bank while writing this paper. Furthermore, Martin Jensen, Morten Ravn and Paul Levine for their valuable comments and contributions on this research. The views expressed in this paper are those of the authors and not necessarily those of the Bank of Greece. Any errors or omissions are the responsibility of the authors

Stylianos Tsiaras
European University Institute
Badia Fiesolana- Via dei Roccettini 9
I-50014 San Domenico di Fiesole (FI) - Italy
Email: stylianos.tsiaras@eui.eu


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