Bank of Greece Economic Bulletin, Issue 60
31/01/2025 - Press Releases
Today, the Bank of Greece published the latest issue of its Economic Bulletin (No. 60 / December 2024).
The articles published in the Economic Bulletin reflect the views of the authors and not necessarily those of the Bank of Greece.
Issue 60 features the following three articles:
Dimitris Papageorgiou and Anastasios Rizos: “Inflation dynamics and the role of domestic factors”
The observed inflation differentials across euro area countries, along with the divergence between the Harmonised Index of Consumer Prices (HICP) and GDP deflator trends within countries, highlight the potential role of country-specific institutional and structural characteristics in shaping inflation dynamics in response to import price shocks.
The article investigates the role of domestic factors in shaping inflationary dynamics. It employs a Dynamic Stochastic General Equilibrium (DSGE) model to examine the macroeconomic effects of a temporary import price shock under varying degrees of real wage rigidity in the labour market. The results indicate that economies with high degrees of real wage rigidity are likely to experience higher and more persistent inflationary pressures than economies with low degrees of real wage rigidity. Real wage rigidities constrain firms from absorbing part of the higher import costs through reductions in labour costs, thus resulting in greater pass-through of input costs to final prices, which in turn generates strong and persistent inflation and adversely affects employment and output. In contrast, in economies with low real wage rigidities firms have more flexibility in managing rising import costs, thereby mitigating the negative impact on output. Additionally, the paper demonstrates a relatively straightforward methodology using national accounts data to explore the relationship between domestic factors and inflation dynamics.
Case studies for the euro area and Greece reveal that the rise in domestic inflation since 2021 is largely associated with an increase in profits. Labour costs are also linked to inflationary pressures, though their contribution is relatively smaller than that of profits. In Greece, the increase in profits is primarily associated with the services sector, followed by the industry sector.
Styliani Belli and Nikolaos Charitakis: “The measurement of international investment through FDI statistics: Structure and results of the Bank of Greece’s annual foreign direct investment survey”
The article describes the methodology, the statistical process and the results obtained from the annual Foreign Direct Investment (FDI) survey conducted by the Bank of Greece. First, it makes extensive reference to the OECD Benchmark Definition of Foreign Direct Investment (BMD4), which provides full and detailed guidance on the coverage and compilation of FDI statistics. After defining what FDI statistics include and illustrating the ownership structure of a multinational enterprise group under the Benchmark Definition, the analysis focuses on the instructions of BMD4 for the compilation and presentation of aggregated as well as detailed FDI statistics by partner country and by economic activity. Next, the study outlines the content and the structure of the survey’s questionnaires, and the statistical process followed for the compilation of FDI statistics. Finally, it presents the results obtained from the FDI survey at the level of stocks by partner country and by economic activity, as well as the main economies that ultimately control investments in Greece and the intermediate chains they use.
Marianthi Anastasatou: “Forecasting potential output for Greece”
The article presents a description of the current version of the production function methodology used at the Bank of Greece for assessing and forecasting potential output and the output gap. In addition, it presents the medium-term projections: potential output growth is expected to be 1.9%, supported by Total Factor Productivity (TFP) and capital, while the negative demographics are soon to weigh on the productive capacity of the economy. At the end of the projection horizon, most of the potential output growth accrues from TFP, suggesting the need to continue implementing structural reforms. The study concludes with a brief discussion regarding the complexities of estimating TFP.
Related information:
Issue 60 also includes the abstracts of Working Papers published by the Special Studies Division of the Bank’s Economic Analysis and Research Directorate between August and December 2024.
Related link:
The full text of Issue 60 is available on the Bank of Greece website: Bank of Greece Economic Bulletin, Issue 60.