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Should Greece adopt a dual-currency regime to resolve its economic crisis?

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  • Kasimati, Evangelia
  • Veraros, Nikolaos

Abstract

Our small macroeconomic model examines the scenario of introducing a dual-currency regime in Greece in order to restore its fiscal imbalances in the aftermath of the outbreak of the Greek crisis. Particular attention is paid to the contraction of the economic output until a fiscal equilibrium is achieved. The conclusion for the policy maker is that in the dual-currency scenario, changes in output are smoothed out compared to the scenario of staying within the euro area; however, the level of debt versus GDP deteriorates, largely due to the currency devaluation. More important, irrespective of the selected currency regime, a continuous reduction in the government expenditure is indispensable for the government in order to restore the fiscal equilibrium.

Suggested Citation

  • Kasimati, Evangelia & Veraros, Nikolaos, 2013. "Should Greece adopt a dual-currency regime to resolve its economic crisis?," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 588-600.
    • Handle: RePEc:eee:jpolmo:v:35:y:2013:i:4:p:588-600
    DOI: 10.1016/j.jpolmod.2012.11.002
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    References listed on IDEAS

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    Cited by:

    1. D’Adamo, Gaetano & Rovelli, Riccardo, 2015. "The role of the exchange rate regime in the process of real and nominal convergence," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 21-37.
    2. Kappius, Robert & Neumärker, Bernhard, 2015. "Could exit rules be self-enforcing in the EU? The cases of France and Germany," The Constitutional Economics Network Working Papers 02-2015, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    3. Pitsoulis, Athanassios & Schwuchow, Soeren C., 2017. "Holding out for a better deal: Brinkmanship in the Greek bailout negotiations," European Journal of Political Economy, Elsevier, vol. 48(C), pages 40-53.
    4. Alberto Bagnai & Brigitte Granville & Christian Alexander Mongeau Ospina, 2017. "Withdrawal of Italy from the Eurozone: stochastic simulations of a structural macroeconometric model," a/ Working Papers Series 1702, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
    5. Bagnai, Alberto & Granville, Brigitte & Mongeau Ospina, Christian A., 2017. "Withdrawal of Italy from the euro area: Stochastic simulations of a structural macroeconometric model," Economic Modelling, Elsevier, vol. 64(C), pages 524-538.

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    More about this item

    Keywords

    Dual-currency; Macroeconomic model; Government deficit; Greece;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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