Greece’s Three-Act Tragedy: A Simple Model of Grexit vs. Staying Afloat inside the Single Currency Area

TY - JOUR

T1 - Greece’s Three-Act Tragedy

T2 - A Simple Model of Grexit vs. Staying Afloat inside the Single Currency Area

AU - Chen, Yu-Fu

AU - Funke, Michael

N1 - Funding: none

PY - 2017/4

Y1 - 2017/4

N2 - 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 regime-switching 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 Greek government and the “institutions”.

AB - 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 regime-switching 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 Greek government and the “institutions”.

KW - Greece

KW - Sudden stop

KW - Euro

KW - Financial assistance programme

UR - http://link.springer.com/article/10.1007/s11079-016-9421-0

U2 - 10.1007/s11079-016-9421-0

DO - 10.1007/s11079-016-9421-0

M3 - Article

SN - 0923-7992

VL - 28

SP - 297

EP - 318

JO - Open Economies Review

JF - Open Economies Review

IS - 2

ER -