Against the backdrop of the Greek three-act tragedy, we present a theoretical framework for studying Greece’s recent debt and currency crisis. The model is built on two essential blocks: first, erratic macroeconomic policymaking in Greece is described using a stochastic regimeswitching model; second, the euro area governments’ responses to uncertain macroeconomic policies in Greece are considered. The model’s mechanism and assumptions allow either for a Grexit from the euro area or, conversely, the avoidance of Greece’s default against its creditors. The model also offers useful guidance to understand key drivers of the long-winded negotiations between the Syiza government and the euro area governments.
|Place of Publication||Germany|
|Publisher||CESifo Group Munich|
|Number of pages||26|
|Publication status||Published - 23 Dec 2015|
|Name||CESifo Working Paper|
- currency crisis
- financial assistance programmes
Chen, Y-F., & Funke, M. (2015). Greece’s Three-Act Tragedy: A Simple Model of Grexit vs. Staying Afloat inside the Single Currency Area. (pp. 1-26). (CESifo Working Paper; No. 5677). CESifo Group Munich.