Bank of Greece Economic Bulletin, Issue 54
02/02/2022 - Press Releases
Today, the Bank of Greece published the latest issue of its Economic Bulletin (No. 54 / December 2021).
The articles published in the Economic Bulletin reflect the views of the authors and not necessarily those of the Bank of Greece.
Issue 54 features the following three articles:
Dimitris Papageorgiou: “Macroeconomic effects of shocks to import and services sector prices”
This paper investigates the macroeconomic implications of inflationary shocks that originate from the import and services sectors. The set-up is a medium-scale Dynamic Stochastic General Equilibrium (DSGE) model calibrated for the Greek economy. The results suggest that a temporary increase in import price inflation adversely affects economic activity and drives up domestic inflation. The largest output losses occur in the medium term, since in the short term the adverse effects are dampened by the presence of price rigidities and an import substitution effect that induces expenditure to switch towards domestically produced goods. Additionally, the findings suggest that a temporary increase in the price of the services sector exerts strong inflationary pressures and negatively affects economic activity. Finally, the results show that inflation persistence matters for the effects on the macroeconomy. The more persistent inflation is in imports and the services sector, the larger the output losses.
Eleni Argiri and Ifigeneia Skotida: “The 2021 review of the monetary policy strategy of the Eurosystem: an economy of forces”
This study delves into the rationale behind the 2021 review of the monetary policy strategy of the Eurosystem and elaborates on the main elements of the new strategy and its implications for monetary policy-making going forward. The profound changes in the economic landscape that have taken place since the last review in 2003 prompted the European Central Bank and the euro area national central banks to embark on a comprehensive review of the monetary policy strategy of the Eurosystem. The aim has been to ensure that the strategy reflects upon these unique challenges and remains well suited in pursuit of the primary objective of price stability. The key outcome of the strategy review, unveiled in July 2021, has been the reformulation of the price stability objective so as to adopt a symmetric commitment to the 2% inflation target over the medium term, as well as the confirmation of the flexible use of unconventional monetary policy tools when the economy operates close to the effective lower bound of interest rates. In addition, the new strategy has further incorporated financial stability and climate change considerations into the monetary policy framework. The study outlines the enhancements embedded in the new strategy, as regards the fulfilment of the Eurosystem’s price stability mandate. Finally, the authors discuss the ways in which the new strategy could have, to some extent, addressed the challenges faced by the euro area and its individual members, with a focus on Greece, over the past crisis years.
Ioanna Bardaka and Athina Rentifi: “The importance of selected structural competitiveness indicators for exports: a comparative analysis between the euro area and Greece”
Structural (non-price) competitiveness departs from price or cost competitiveness and captures a multitude of dimensions, both quantitative and qualitative, affecting a country’s trade and openness. Greece over time has lagged behind in key structural competitiveness indicators relative to other euro area countries, but has improved its position in some of the indicators over the recent years, in terms of relative prices and unit labour costs. The paper examines the evolution of price and structural competitiveness, the latter approximated with institutional quality indicators published by international organisations, recording the performance of Greece and euro area countries over the last decade, on an annual basis, in order to gain more insight into how exports are affected. A panel regression of an export demand function is estimated for the 19 euro area member countries, separately for each of the selected indicators. It is confirmed that structural competitiveness, along with price competitiveness, has played an important role in determining exports in the euro area and in Greece over the 2007-19 period. The authors report greater sensitivity of Greek exports to institutional quality indicators, compared with average euro area exports. This is an indication of the faster pace of reform implementation in other euro area countries, while the reforms in Greece are in a process of catching up. The implementation of structural reforms in the direction of improving institutional deficiencies has contributed, among other factors, to the observed post-crisis export-led growth in Greece. In conclusion, the pace of reforms already under way should be accelerated, and this will be mirrored in the country’s structural competitiveness indicators and expressed as better scores and higher rankings converging towards the performance of the other euro area countries.
Related information:
Issue 54 also includes the abstracts of Working Papers published by the Special Studies Section of the Bank’s Economic Analysis and Research Department between August and December 2021.
Related link:
The full text of Issue 54 is available on the Bank of Greece website: Bank of Greece Economic Bulletin, Issue 54.