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Economic Bulletin No. 20 (English version) is released, containing a study on monetary policy in the 1990-2000 period

31/10/2003 - Press Releases

Coinciding with the celebration of the 75th anniversary of the Bank of Greece, the English-language version of issue No. 20 of the Bank's Economic Bulletin is released today. This issue contains a study by H. Voridis, E. Angelopoulou and I. Skotida, economists in the Economic Research Department of the Bank, which was originally published in Greek and is entitled "Monetary policy in Greece 1990-2000 through the publications of the Bank of Greece". The study deals with one of the most interesting periods in the Bank’s history.

The study provides a narrative of monetary policy in Greece during the period 1990-2000. As explained in the introduction, the study draws upon documents published by the Bank of Greece, which represented its position on various issues or constituted its secondary legislation. The article also makes use of research articles prepared and published under the aegis of the Bank. With the help of all this material, the study attempts a synthetic presentation of the monetary analysis put forward by the Bank and of the monetary policy measures taken.

For many years, the monetary policy of the Bank aimed at the stabilisation of the economy, thus preparing (together with other policies not examined here) the ground for adoption of the euro by Greece on 1 January 2001. In section 1, the study follows the evolution of ultimate objectives and intermediate targets set for monetary policy in Greece. The motivations for interest rate adjustments are explored and the primary concern of the monetary authorities with exchange rate developments is noted, while the difficulties encountered by monetary targeting are also recorded.

In section 2, the study turns to a detailed look at two landmarks on the nominal convergence path of the Greek economy. These are the successful defense of the drachma against a major speculative attack in the foreign exchange market in May 1994 and the entry into the Exchange Rate Mechanism of the European Monetary System on 16 March 1998.

The Bank's monetary policy had to overcome various difficulties, as explained in section 3 of the study, before the convergence criteria could be satisfied. Two main problems are singled out: excessive capital inflows, which fuelled domestic credit expansion, and short-term interest-rate divergence from the euro area. The study analyses policy responses to limit capital inflows, ranging from the establishment of a two-tiered standing deposit facility enabling the Bank to mop up interbank liquidity, to non-monetary measures. Reserve requirements were adjusted by the Bank in order to moderate rapid domestic credit expansion, while interest and exchange rate convergence were handled by the Bank of Greece very carefully.

Preparation for introduction of the euro in Greece necessarily included adoption by the Bank of the operational framework of the single monetary policy. The approach of the Bank to this major undertaking is described in section 4 of the study as well as (in greater detail) in the Annex. Indirect methods of monetary control, such as those of the Eurosystem, go together with a largely deregulated financial environment. The article considers some of the interrelationships between the adoption of the euro and financial deregulation and takes the opportunity to chronicle banking liberalisation in Greece in two extensive tables going back to before the beginning of the 1990s.

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