Georgios P. Kouretas

The Greek crisis: Causes and implications

This paper presents and critically discusses the origins and causes of the Greek fiscal crisis and its implications for the euro currency as well as the SEE economies. In the aftermath of the 2007-2009 financial crisis the enormous increase in sovereign debt has emerged as an important negative outcome, since public debt was dramatically increased in an effort by the US and the European governments to reduce the accumulated growth of private debt in the years preceding the recent financial turmoil. Although Greece is the country member of the eurozone that has been in the middle of this ongoing debt crisis, since November 2009 when it was made clear that its budget deficit and mainly its public debt were not sustainable, Greece’s fiscal crisis is not directly linked to the 2007 US subprime mortgage loan market crisis. As a result of this negative downturn the Greek government happily accepted a rescue plan of 110 billion euros designed and financed by the European Union and the IMF. A lengthy austerity programme and a fiscal consolidation plan have been put forward and are to be implemented in the next three years.

A Cointegration Analysis of the Official and Parallel Foreign Exchange Markets for Dollars in Greece

This paper examines the monetary model of exchange rate determination from a long-run perspective in the presence of a parallel or black market for US dollars in Greece using monthly data for the recent float, in four ways. First, unit root tests that maintain both stationarity and nonstationarity about either mean or trend are employed to determine the order of integration of our data. Second, using the Johansens multivariate cointegration technique we found one significant cointegration vector. Johansens FIML and Stock and Watsons (1993) DOLS approach were employed to estimate the cointegration coefficients. Third, formal stability tests as described by Hansen and Johansen (1993) were used, and it is shown that the dimension of the cointegration space may exhibit sample dependency, but the estimated coefficients are not unstable in recursive estimations. Finally, a new efficient and consistent test that maintains the null of cointegration developed by Shin (1994) was utilized, and once again the evidence in favour of cointegration was accepted. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

Mean and Variance Causality between Official and Parallel Currency Markets: Evidence from Four Latin American Countries

This paper examines the issue of mean and variance causality across four Latin American official and black markets for foreign currency using monthly data for the period 1976-1993. We apply a recent test developed by Cheung and Ng (1996) in order to test for mean and variance spillovers. The main findings are: (1) In contrast to the findings of previous studies, EGARCH-M processes characterize each bilateral exchange rate series in both markets: (2) There is substantial evidence of causality in both mean and variance with the causality in mean largely being driven by the causality in variances and (3) The results indicate that the major exporter of causality is the Mexican black market with the black market of Argentina and the black and official markets of Brazil being the smallest contributors. Copyright 2002 by the Eastern Finance Association.

The monetary model in the presence of I(2) components: long-run relationships, short-run dynamics and forecasting of the Greek drachma

This paper re-examines the long-run properties of the monetary exchange rate model using data for the drachma–dollar and drachma–mark exchange rates under the hypothesis that the system contains variables that are I(2). Using the recent I(2) test by Paruolo (On the determination of integration indices in I(2) systems. J. Economet. 72 (1996) 313–356) to examine the presence of I(2) and I(1) components in a multivariate context we find that the system contains two I(2) variables in both cases and this finding is reconfirmed by the estimated roots of the companion matrix (Do purchasing power parity and uncovered interest rate parity hold in the long-run? An example of likelihood inference in a multivariate time-series model. Juselius, J. Economet. 69 (1995) 211–240). The I(2) component led to the transformation of the estimated model by imposing long-run but not short-run proportionality between domestic and foreign money. Two statistically significant cointegrating vectors were found and, by imposing linear restrictions on each vector as suggested by Johansen and Juselius (Identification of the long-run and the short-run structure: an applicaion to the ISLM model. J. Economet. 63 (1994) 7–36) and Johansen (Identifying restrictions of linear equations with applications to simultaneous equations and cointegration. J. Economet. 69 (1995b) 111–132), the order and rank conditions for identification are satisfied, but the test for overidentifying restrictions was not significant only for the case of the drachma/mark rate. The main findings suggest that we reject the forward-looking version of the monetary model for the drachma/dollar case but not when the drachma/mark rate is used, a result that is attributed to the monetary and exchange rate policy followed by the Greek authorities since Greeces joining of the European Union. Furthermore, we test for parameter stability using the tests developed by Hansen and Johansen (Recursive estimation in cointegrated VAR-models. Working paper (1993) University of Copenhagen) and it is shown that the dimension of the cointegration rank is sample independent while the estimated coefficients do not exhibit instabilities in recursive estimations. Finally, it is shown that the monetary model outperforms the random walk model in an out-of-sample forecasting contest.

The monetary approach to the exchange rate: Long-run relationships, identification and temporal stability*

This paper re-examines the monetary model of exchange rate determination from a long-run perspective using data for three key U.S. dollar bilateral exchange rates. A novel feature of the analysis is the implementation of the testing procedure suggested by Paruolo (1996) to examine for the presence of I(2) and I(1) components in a multivariate context. Furthermore, we consider the cointegration rank utilizing the maximum likelihood cointegration technique proposed by Johansen, 1988 , Johansen, 1991 as well as the estimated roots of the companion matrix ( Juselius 1995 ). Two statistically significant cointegrating vectors were identified and by imposing linear restrictions on each vector as suggested by Johansen and Juselius (1994) the order and rank conditions for identification are satisfied, but all tests for overidentifying restrictions were significant. The main findings suggest that we reject the forward-looking version of the monetary model but the unrestricted monetary model is a valid framework for explaining the long-run movements of these exchange rates. Finally, we test for parameter stability using the tests developed by Hansen and Johansen (1993) and it is shown that the dimension of the cointegration rank may be sample dependent while the estimated coefficients do not exhibit instabilities in recursive estimations.

Long and Short-Run Linkages in CEE Stock Markets: Implications for Portfolio Diversification and Stock Market Integration

This paper examines the short- and long-term relationships between seven Central Eastern European (CEE) stock markets and two developed stock markets, namely the German market and the US market. Application of the Gonzalo and Granger (1995) methodology indicates that the examined stock markets are partially integrated, while there is also evidence that the five stock markets in the central Europe (Czech Republic, Hungary, Poland, Slovenia and Slovakia) together with the German and the US stock markets have a significant common permanent component, which drives this system of stock exchanges in the long run. Contrary, the Estonian and Romania markets are segmented. A DCC model indicates that the short ??? term interdependencies between the CEE stock markets and the developed stock markets have strengthened during the Asian and Russian crises but since then (except for the Czech Republic, Hungary, Poland) they returned almost to their initial (relatively low) levels. Moreover, significantly increased volatility is observed during the Russian crisis period for all the markets under enquiry.

Anxious periods and bank lending.

We examine the lending behavior of banks during anxious periods. The main characteristic of anxious periods is that the perceptions and expectations about economic conditions worsen for economic agents even though the economy is not in a recession. We identify distinct periods of anxiety for consumers, CEOs (firms) and analysts. Subsequently, we study the lending behavior of US banks during the anxious quarters from 1985 to 2010, using bank-level data. The results show that banks’ lending falls when consumers and analysts are anxious, and this effect is more pronounced when banks hold a higher level of credit risk. These effects are more pronounced in anxious periods that were followed by recessions, and in these periods loan growth also responds negatively to the anxiety of CEOs. Yet, these effects are quite less prevalent in the period after 2001.

Black and official exchange rates in Greece: an analysis of their long-run dynamics

Abstract This paper analyzes the long-run dynamic relationship between black and official exchange rates for Greece over the period 1975–1993. We apply Paruolos (1996) recent test to the joint hypothesis of cointegration rank and the presence of I (2) and I (1) components along with the estimation of the roots of the companion matrix (Juselius, Journal of Econometrics, 69, (1995), 211–240) and we find evidence of one long-run relationship between the black and official exchange rate. We also show that the long-run proportionality hypothesis between the two exchange rates could not be rejected, which implies the existence of a constant long-run black-market premium. When the premium deviates from its long-run value, the black-market rate adjusts to eliminate the deviation and the speed of adjustment is quite large. Further tests suggest that there is weak-form informational inefficiency in the black markets, which may be due, in part, to the transaction costs and the tight administrative controls over foreign exchange. The results have implications for managing exchange-rate risk and for possible arbitrage opportunities in these markets.

The monetary approach to the exchange rate: long-run relationships, coefficient restrictions and temporal stability of the Greek drachma

The monetary approach to the exchange rate is examined for four Greek drachma bilateral exchange rates, using data for the recent experience with flexible exchange rates. Four important findings are reported. First, it is demonstrated using the Johansen-Juselius multivariate cointegration technique, that an unrestricted monetary model is a valid framework for analysing the long-run equilibrium relationship of the exchange rate. Second, is found that the proportionality hypothesis of the exchange rate to relative monies is accepted for the four bilateral rates. Third, using some new tests based on recursive analysis proposed by Hansen-Johansen it is found that the dimension of the cointegration space may exhibit sample dependency, but the estimated coefficients do not display instabilities in recursive estimation. Finally, using the residual-based test for the null of cointegration newly developed by Shin, it is shown, that for the case of the drachma-Deutschemark and drachma-franc the null hypothesis is a...

The Canadian Dollar and Purchasing Power Parity during the Recent Float

This paper re-examines the purchasing power parity (PPP) concept for five bilateral Canadian dollar exchange rates. The Johansen cointegration technique is employed. Evidence is found in favor of PPP when wholesale prices are used but not when consumer prices are utilized; whereas, in all but one case, it is not possible to reject the symmetry and proportionality hypotheses. Furthermore, it is shown that the dimension of the cointegration space may exhibit sample dependency, but the estimated coefficients are stable in recursive estimations. Finally, by implementing the multivariate KPSS test for the null hypothesis of cointegration, Johansens results are overturned. Copyright 1997 by Blackwell Publishing Ltd.