Bank of Greece Economic Bulletin, Issue 61
17/07/2025 - Press Releases
Today, the Bank of Greece published the latest issue of its Economic Bulletin (No. 61 / July 2025).
The articles published in the Economic Bulletin reflect the views of the authors and not necessarily those of the Bank of Greece.
Issue 61 features the following three articles:
Georgios Palaiodimos and Dimitris Papageorgiou: “VAT rate shocks and inflation: a theoretical and empirical analysis for Greece”
This article evaluates the effectiveness of Value Added Tax (VAT) reductions as a tool to mitigate inflation in Greece, combining empirical evidence with structural macroeconomic analysis. First, the estimation of a small-scale structural vector autoregression (SVAR) model reveals that temporary VAT reductions exert a statistically insignificant effect on inflation. Nevertheless, when VAT reductions are accompanied by enhancements in product market competitiveness, the disinflationary effects become both significant and persistent. Second, the results from a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to the Greek economy indicate that the short-run pass-through of VAT cuts to consumer prices is partial, ranging between 19% and 25% in the short term. This pass-through is highly influenced by structural factors and the persistence of policy interventions. Notably, permanent VAT cuts generate nearly twice the inflation pass-through compared to temporary ones. The disinflationary impact is also stronger in economies with more competitive product markets, where firms are more likely to transmit cost reductions to prices. Conversely, in economies characterised by relatively high nominal rigidities or limited domestic input use, the inflation response to VAT reductions is diminished. Overall, the results of the study demonstrate the significance of structural conditions in determining the inflationary outcomes of VAT-based fiscal measures.
Georgios Gatopoulos, Alexandros Louka, Antonis Mavropoulos, Sotirios Saperas and Nikolaos Vettas: “Housing affordability for Greek households”
In this article, the authors use two waves of the cross-sectional Household Finance and Consumption Survey (HFCS) for 2018 and 2021 in order to construct a housing affordability index. The index is based on the ratio of housing costs to household disposable income at both national and regional level, as well as according to the degree of urbanisation. The evolution of the index and of the housing cost overburden rate indicates that housing affordability worsened from 2018 to 2021, while also revealing significant regional heterogeneity, with the issue being more pronounced in urban areas, particularly among renting households. Subsequently, the study identifies, through both descriptive and econometric evidence, the characteristics of the most vulnerable households, showing that younger and smaller in size households, the unemployed and those with lower income are facing the highest affordability constraints. Via these findings, the article provides useful insights for the design of policies aimed to address the housing affordability issue.
Sophia Lazaretou and Georgios Palaiodimos: “The long record of inflation shocks in Greece: drivers and impacts”
Global geopolitical tensions have increased considerably in recent years. This has affected the economies primarily via prices on commodities. As a result, global inflation has risen in the aftermath of geopolitical shocks. Given the higher energy and food price shares in the consumer basket, Greek inflation has also risen significantly. Historically speaking, Greece has repeatedly experienced periods of inflationary pressure. Over the past 50 years, global supply-side shocks have triggered cost-push inflation, which was often accommodated by expansionary policies. This article analyses the historical trajectory of inflationary shocks in Greece, aiming to document inflation trends from the early 1970s to the present. In particular, it identifies the underlying forces that have driven inflation, which in turn entails an examination of both domestic demand and supply shocks, as well as global supply shocks. The authors find that there is a direct interplay between domestic demand and supply shocks, global supply shocks driven by geopolitical tensions and Greek headline inflation.
Related information:
Issue 61 also includes the abstracts of Working Papers published by the Special Studies Division of the Bank’s Economic Analysis and Research Directorate between January and June 2025.
Related link:
The full text of Issue 61 is available on the Bank of Greece website: Bank of Greece Economic Bulletin, Issue 61.