The Macroeconomics of the Greek Depression

Abstract

The Greek economy has experienced three distinct phases in the past 20 years: a boom from 1999 to 2007, a crash from 2007 to 2012, and a flattening from 2012 to 2017. We explore these dynamics using a quantitative model of a two-sector small open economy with nominal frictions, collateral constraints, and endogenous utilization. We first evaluate the roles of shocks to productivity, financial conditions, fiscal policy, external demand, and disaster risk in contributing to the cycle. We then ask whether counterfactual policies such as an unexpected devaluation or an alternative mix of fiscal adjustments could have facilitated the recovery.

Utilization-Adjusted TFP Across Countries: Measurement and Implications for International Comovement

“…A literature in closed-economy macroeconomics going back to Greenwood, Hercowitz, and Human (1988) studies the implications of variable factor utilization for domestic business cycles (see, among many others, Bils and Cho, 1994;Cooley, Hansen, and Prescott, 1995;Gilchrist and Williams, 2000;Fair, 2018;Chodorow-Reich, Karabarbounis, and Kekre, 2019). Closely related to the focus of BFK, Shapiro (1993) nds that variations in capital's workweek explain much of the cyclicality of TFP.…”

Utilization-Adjusted TFP Across Countries: Measurement and Implications for International Comovement

“…A literature in closed-economy macroeconomics going back to Greenwood, Hercowitz, and Human (1988) studies the implications of variable factor utilization for domestic business cycles (see, among many others, Bils and Cho, 1994;Cooley, Hansen, and Prescott, 1995;Gilchrist and Williams, 2000;Fair, 2018;Chodorow-Reich, Karabarbounis, and Kekre, 2019). Closely related to the focus of BFK, Shapiro (1993) nds that variations in capital's workweek explain much of the cyclicality of TFP.…”

The Greek Great Depression from a neoclassical perspective

“…Note that the perpetual inventory method we use to construct the capital stock series assumes that the capital input is fully utilized and the depreciation rate is constant. However, capital utilization declined during the crisis in Greece, which means that the capital input may have decreased more than our constructed series suggest Chodorow-Reich et al (2019). provide evidence for the evolution of the…”