The Determinants of Economic Fluctuations in Greece: An Empirical Investigation (1995-2014)

Konstantakis, Konstantinos and Michaelides, Panayotis G. and Tsionas, Efthymios (2015): The Determinants of Economic Fluctuations in Greece: An Empirical Investigation (1995-2014).

Abstract

In this work, we investigate the determinants of the Greek Business Cycle in the time period 1995-2014. To this end, we make use of a wide dataset in a quarterly format, which contains all the major macroeconomic and financial variables that have had a certain impact on the Greek economy. We apply a number of relevant econometric techniques such as filtering, Fourier analysis, white noise tests, unit root tests, structural breaks tests, backward regression and rolling windows analysis. Our findings show that the Greek business cycle exhibits two structural breaks, one in 2004 (Q3) and one in 2011(Q4). In the sub- period 1995-2004, the 10-year bond-yields and the elections were found to have a pro-cyclical character on the Greek Business Cycle, while the formation of EMU was found to have a counter-cyclical effect. In the time period 2005-2012, Greek credit and imports were found have a strong pro-cyclical impact, while the overall EU-17 Business Cycle and the Troika had a countercyclical impact on the Greek economy. Further research on the implications of the Greek crisis for other countries would be important.

• Item Type: MPRA Paper
• Language: English
• Keywords: Business Cycles, Greece
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

References

Backus, D.K., and P.J. Kehoe (1992), International evidence on the historical properties on business cycles, American Economic Review, 82(4), pp. 864-888.

Baxter, M. and R.G. King (1999), Measuring Business Cycles: Approximate Band-pass Filters for Economic Time Series, Review of Economic and Statistics, 81(4), 575-593.

Belegri-Roboli A. &Michaelides, P. (2007),Estimating labour and output gap: evidence from the Athens Olympic Region in Greece,Applied Economics, Taylor& Francis Journals, Vol. 39, No. 19, pp. 2519-2528.

Böwer, U. and Guillemineau, C. (2000), Determinants of Business Cycle Synchronisation Across Euro Area Countries, ECB, Working Paper No. 587.

Burns, A.F., and W.C. Mitchell (1946), Measuring Business Cycles, New York: National Bureau of Economic Research.

Camacho, M., Perez-Quiros, G., and Saiz, L. (2006), Are European Business Cycles Close Enough to be just One?, Journal of Economic Dynamics and Control Vol. 30, pp. 1687-1706.

Charter, D. (2010), Storm over bailout of Greece: EU's most ailing economy, Time Online (Brussels).

Chauvet, M., and Xu, G. (2006), International Business Cycles: G7 and OECD Countries, Economic Review of Federal Reserve Bank of Atlanta, issue Q 1, pp. 43-54.

Clemente, J., Montanes, A., Reyes, M., (1998), Testing for a unit root in variables with a double change in the mean,Economics Letters, 59, 175-182.

Cogley, T., and Nason, J.M. (1995), .Effects of the Hodrick-Prescott Filter on Trend and Difference Stationary Time Series: Implications for Business Cycles Research, Journal of Economic Dynamics and Control, 19, 253-278.

Christiano J. L, Eichenbaum S. M and Trabandt, M. (2013), Unemployment and Business Cycles, NBER working papers, No19265.

Danthine, J.P., and M. Girardin (1989), Business Cycles in Switzerland. A Comparative Study, European Economic Review, 33, pp. 31-50.

Jarque, Carlos M. andBera, Anil K. (1987), A test for normality of observations and regression residuals, International Statistical Review, 55 (2): 163–172.

King, R. G. and Rebelo, S. (1993), Low frequency filtering and real business cycles, Journal of Economic Dynamics and Control, 17, pp. 361–368.

Kiyotaki N. and Moore J. (1997), Credit Cycles, Journal of Political Economy, Vol. 105, No 2, pp. 211-248.

Kose, A., Otrok, C. and Prasad, E. (2008), Global Business Cycles: Convergence or Decoupling?,Institute for the Study of Labor, Discussion Paper No. 3442.

Kydland, F.E., and E.C. Prescott (1990), Business Cycles: Real Facts and a Monetary Myth, Federal Reserve Bank of Minneapolis Quarterly Review, 14, pp. 3-18.

Leon, C. (2007), The European and the Greek Business Cycles: Are they synchronized?,MRPA Paper, No. 1312, November.

Ljung. G. and Box, G.E.P. (1978), On a measure of lack of fit in time series models, Biometrika65, pp. 297–303.

Lucas Jr, R.E. (1977), Understanding Business Cycles, in Karl Brunner, K. and Meltzer. A. (eds.), Stabilization of the Domestic and International Economy, Amsterdam: North Holland.

Maddison, A. (1995), Monitoring the World Economy, 1820-1992, Paris: OECD Development Studies.

Massmann, M., and Mitchell, J. (2004), Reconsidering the evidence: are Eurozone business cycles converging?,Journal of Business Cycle Measurement and Analysis, Vol. 1, pp. 275-307.

Minsky P.H. and Vaughan D. M. (1990), Debt and Business Cycles, Business Economics, Vol. 25, No 3, pp. 23-28.

OECD (2002), Economic Survey of Greece: 2002.

OECD (2007), Economic Survey of Greece: 2007.

Ziemann V. (2012),Debt and Macroeconomic Stability: Debt and Business Cycles, OECD Economics Department Working Papers, No 1005.

Nelson, C.R., and Plosser, C.I. (1982), Trends and Random Walks in Macroeconomics Time Series: Some Evidence and Implications, Journal of Monetary Economics, 10, pp. 139-167.

Perron, P., Vogelsang, T., (1992),Nonstationarity and level shifts with an application to purchasing power parity, Journal of Business and Economic Statistics, 10, 301-320.

Stock, J. and Watson, M. (2003), Has the Business Cycle Changed? Evidence and Explanations, Proceedings, Federal Reserve Bank of Kansas City, pp. 9-56.

White, H. (1980), A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity,Econometrica 48 (4): 817–838.

White, H. (1999), Asymptotic Theory for Econometricians, Academic Press, San Diego, Florida.