Revisiting the quantity theory of money in Euro Area: the case of Greece

This study revisits the Quantity Theory of Money for Greece from the perspective of potentially nonlinear relations between the variables of the equation of exchange. Therefore, this methodological approach makes this study different from previous empirical studies, which were constructed on the assumption of linear relations in this equation. To this aim, for the first time, the nonlinear ARDL model is applied for testing the QTM for a specific country. This model decomposes the variables money stock, price level, and income in the equation of exchange into their increases and decreases. Therefore, the model enables us to examine the validity of the QTM through these increases and decreases separately (partially) under the nonlinear approach. The new methodological approach of this study may be interpreted as a new version of partial QTM testing in relevant literature. Empirical findings reveal that the QTM is partially and weakly valid for Greece. This may emerge not only from the structure of the Greek economy, the behavior of Greek people's financial priorities and the Bank of Greece's monetary policies, but also from the ECB's monetary policies and the behavior of the other euro area countries' people's financial priorities, since Greece is a euro area country