George Alogoskoufis

Athens University of Economics and Business | AUEB · Department of Economics

This paper analyses the implications of monetary policy for the dynamic behaviour of inflation, in a 'natural' rate model characterized by endogenous unemployment persistence. We present evidence for the main industrial economies that suggests that inflation displays persistence which is of the same order of magnitude as the persistence of deviatio...

Greece The two faces of Janus: institutions, policy regimes and macroeconomic performance The clear change in policy regime in Greece around 1974 offers an opportunity to assess the extent to which economic performance depends on institutional underpinning. For twenty years up to 1974, Greece enjoyed rapid growth, high investment and low inflation;...

The author investigates the relation between the dynamics of inflation and international monetary and exchange-rate regimes. He uses an overlapping contracts model to demonstrate that regimes accommodating aggregate and relative price shocks result in higher persistence of global inflation and inflation differentials. The author presents evidence t...

An advanced treatment of modern macroeconomics, presented through a sequence of dynamic equilibrium models, with discussion of the implications for monetary and fiscal policy. This textbook offers an advanced treatment of modern macroeconomics, presented through a sequence of dynamic general equilibrium models based on intertemporal optimization o...

This paper analyzes international borrowing and lending in an optimal growth model with adjustment costs for investment, under both pre-commitment and lack of pre-commitment to debt repayment. We study the dynamics of the current account in the transition towards the balanced growth path, and derive the implications of financial openness for both t...

This paper analyzes international borrowing and lending in an optimal growth model with adjustment costs for investment, under both pre-commitment and non pre-commitment to debt repayment. We study the dynamics of the current account in the transition towards the balanced growth path, and derive the implications of financial openness for both the t...

This paper analyses developments in the Greek economy before and after the euro. The main thesis is that the imbalances that led to the crisis of the post-2010 period were building up during the previous three decades and that their root causes were not merely economic, but social, structural, institutional and political. The fiscal imbalances crea...

This paper reviews and interprets the history of the economy of modern Greece, from the eve of the war for independence in 1821 to the present day. It identifies three major historical cycles: First, the cycle of state and nation building, 1821-1898, second, the cycle of national expansion and consolidation, 1899-1949, and, third, the post-1950 cyc...

This paper analyses developments in the Greek economy before and after the euro. The main thesis is that the imbalances that led to the crisis of the post-2010 period were building up during the previous three decades and that their root causes were not merely economic, but social, structural, institutional and political. The fiscal imbalances crea...

This paper reviews and interprets the history of the economy of modern Greece, from the eve of the war for independence in 1821 to the present day. It identifies three major historical cycles: First, the cycle of state and nation building, 1821-1898, second, the cycle of national expansion and consolidation, 1899-1949, and third, the post-1950 cycl...

The launch of the single currency in 1999 rekindled the European Union's momentum toward deeper integration. And yet progress during its first decade of low interest rates was undermined by bulging budgetary and current account deficits in several eurozone sovereigns that brought them to the brink of default in 2010. The second decade of sluggish a...

In this paper we study optimal central bank interest rate policy, and compare it to interest rate rules, such as the Wicksell (1898), Fisher (1919) and Taylor (1993) rules, in an imperfectly competitive DSGE model of aggregate fluctuations. We demonstrate that in versions of the model with full price and wage adjustment, or staggered pricing, the o...

This paper provides a perspective on the euro area (EA), focusing on macroeconomic and financial asymmetries among its member states and the need for major and fundamental reforms. After surveying the evolution of EU macroeconomic and monetary cooperation and developments since the creation of the euro, and particularly the euro area crisis, we arg...

This paper analyzes the process of destabilization, crisis and adjustment in the Greek economy since the accession of the country to the European Union and, subsequently, the euro area. It reviews four policy cycles of the past 40 years, the four acts of the Greek tragedy, and discusses alternative ways forward, following the sudden stop and the gr...

This paper analyzes international borrowing and lending in an optimal growth model with adjustment costs for investment. We study the relation between optimal savings and investment, and the current account, in the transition towards the balanced growth path, and derive the implications of financial openness for both the transition path and the bal...

This paper analyzes the implications of optimal monetary policy for the dynamic behavior of inflation in a “natural rate” model characterized by endogenous unemployment persistence. We analyze a dynamic “insider outsider” model of the “Phillips Curve”, that accounts for the persistence of unemployment following nominal and real shocks. We derive op...

This paper puts forward an alternative “new Keynesian” dynamic stochastic general equilibrium model of aggregate fluctuations. The model is characterized by one period nominal wage contracts and endogenous persistence of deviations of unemployment from its natural rate. Aggregate fluctuations are analyzed under both a Taylor nominal interest rate r...

This paper investigates the stabilizing role of monetary policy in a dynamic, stochastic general equilibrium model of the “natural rate”, in which non indexed nominal wages are periodically set by labor market “insiders”. This nominal distortion allows for nominal shocks to have temporary real effects, and thus, for monetary policy to be able to af...

This paper puts forward an intertemporal model of a small open economy which allows for the simultaneous analysis of the determination of endogenous growth and external balance. The model assumes infinitely lived, overlapping generations that maximize lifetime utility, and competitive firms that maximize their net present value in the presence of a...

This paper compares financial openness with autarky in a neoclassical growth model, with adjustment costs for investment. We analyse the relation between growth and the current account in the transition towards the balanced growth path, and derive the implications of the two financial regimes for the balanced growth path. For an economy with an ini...

This paper focuses on an econometric investigation of the macroeconomic and political factors that contributed to Greece’s excessive debt accumulation and its failure to adequately address its fiscal imbalances, from the restoration of democracy in 1974 till the crisis of 2009. The econometric investigation is based on a model in which two politica...

This paper examines the effects of government debt policies with imperfect substitutability between securities issued by different countries. It puts forward an intertemporal model of a small open economy to analyze the effects of government debt on the real interest rate, economic growth, private consumption and the balance of payments. The model...

This paper proposes a framework for comparing the predictions of representative household models with those of models of overlapping generations, in the context of a class of endogenous growth theories with investment adjustment costs. In the model used in this paper, savings and investment are co-determined through adjustments in the real interest...

This paper puts forward an intertemporal model of a small open economy to analyze the effects of money, government debt and real shocks on growth, inflation and external balance. The model is an endogenous growth, overlapping generations model, with money in the utility function, convex adjustment costs for investment, and perfect substitutability...

This paper provides an analysis and assessment of the Greek sovereign debt crisis, and examines alternative solutions to the problem. In order to put the current fiscal predicament of Greece in perspective and discuss how the Greek debt crisis might possibly be resolved, the paper first provides a detailed account of how the sovereign debt of Greec...

This book from the Centre for Economic Policy Research (CEPR) deals with the implications of the exchange rate regimes and capital flows of the 1990s for government macroeconomic policy-making and EC policy co-ordination. Under the fixed exchange rates of the 1950s, economists and policy-makers had a much clearer idea of the nature of the external...

Recent theories of inflation stress how the limited ability of policy makers to commit themselves to price stability results in high inflation without any employment benefits. This has been shown by Barro and Gordon (1983) in a sequential move game between wage setters and a central bank along the Phillips curve. An important extension of this mode...

We use Greek data during 1960–1994 to test and estimate a model in which wage inflation, price inflation and unemployment depend on the exchange rate regime, the identity of the political party in power and whether an election is expected to take place. We respect the Lucas critique and take into account the statistical properties of the data. Th...

Euro vs dollar Will the euro replace the dollar as the world currency? Will and should the euro become an international currency? Previous work has noted that measuring size by GDP, role in international trade or even financial markets, Europe matches the USA. On these grounds, the euro is expected to challenge the dollar's supremacy. Cost-benefit...

This paper examines the effects of three alternative rules for public investment on output growth in a model with private and public capital. The rules considered are: (i) a fixed ratio of public capital to output; (ii) a fixed growth rate for public capital; and (iii) a fixed ratio of public investment to output. We find that all these rules are c...

High unemployment is widely regarded as the most important challenge facing European policy-makers today. At unemployment rates of between 8% and 25% across the countries of the Union, Europe's performance compares particularly unfavourably with that of the United States. But does this result from an inability to understand the fundamental causes o...

New exchange rate bands Elhanan Helpman, Leonardo Leiderman and Gil Bufman Following inflation stabilization programmes where a fixed exchange rate was used as an anchor, a number of countries have gradually shifted towards a regime of increased flexibility. In particular, Chile, Israel and Mexico have for some years adopted a regime of crawling ex...

The Ramsey-Romer model of endogenous growth is extended to allow for holdings of real money balances and government debt as well as capital and for non-interconnected generations of households. Tax-financed increases in government consumption and debt depress growth prospects and boost inflation, as long as a positive birth rate ensures that future...

Older vintages of growth theory such as Solow (1956) Swan (1956) or Cass, (1965) assume diminishing marginal productivity of capital and predict convergence of levels in output and capital, so that they are of little use in answering questions of development. ‘Poor’ countries have a lower capital stock and thus a higher marginal productivity of cap...

The authors extend the "rational partisan" model of inflation to allow for the effects of unemployment persistence on the dynamics of inflation. The authors combine this model with the "exchange-rate-regime" model of inflation, and examine the experience of the United Kingdom. Outside the fixed exchange rate regime of Bretton Woods, persistently hi...

Nonfuel primary commodity prices fell more than 30 percent in real terms between 1984 and 1990, even though global economic growth was reasonably strong. The collapse of international commodity agreements, rapid increases in supply for some crops, and agricultural policies in industrial countries have been responsible for some of the price decline....

This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...

In this paper we examine the international implications of monetary union in the European Community (EMU), and the associated international costs and benefits. We consider prospective changes in international institutions, the potential role of the ecu as an international currency, and the implications of EMU for the international coordination of m...

We investigate the effects of budgetary policies in a two-country model of overlapping generations and endogenous growth. In the presence of capital mobility, endogenous growth rates are equalized, but output levels do not converge. A worldwide rise in the public debt to GDP ratio or the share of government consumption reduces savings and growth. A...

In this paper we set up, estimate and test a short‐run model for the poultry sector in Greece. The model allows for the simultaneous existence of a monopolistically competitive and a competitive segment, and determines producer and consumer prices, and the quantity consumed. We provide evidence on steady‐state parameters such as demand and supply e...

Originally published in 1985 this reissue , which includes contributions from leading economists, addresses many seminal aspects of Keynes' work and methods, and should be of interest to lecturers and advanced students of economics. Keynes' methodological contribution has been neglected generally, being overshadowed by his other work on economic th...

We investigate the effects of budgetary policies on growth rates, external debt, real interest rates and the stock market valuation of capital in a two-country, overlapping-generations model of endogenous growth. A worldwide rise in the public debt/GDP ratio, or the share of government consumption, reduces savings and growth. They also increase rea...

The Ramsey-Romer model of endogenous growth is extended to allow for holdings of real money balances and government debt as well as capital and for non-interconnected generations of households. Tax-financed increases in government consumption and debt depress growth prospects and boost inflation, as long as a positive birth rate ensures that future...

In this paper we set up, estimate and test a short-run model for the poultry sector in Greece. The model allows for the simultaneous existence of a monopolistically competitive and a competitive segment, and determines producer and consumer prices, and the quantity consumed. We provide evidence on steady-state parameters such as demand and supply e...

Error Correction Models (ECMs) have proved a popular organizing principle in applied econometrics, despite the lack of consensus as to exactly what constitutes their defining characteristic, and the rather limited role that has been given to economic theory by their proponents. This paper uses a historical survey of the evolution of ECMs to explain...

The authors present evidence from the United States and the United Kingdom that the persistence of price inflation is significantly higher under managed-exchange-rate regimes than under gold-based, fixed-exchange-rate regimes. These differences are also reflected in expectations-augmented Phillips curves. The authors use a two-country macro model,...

In this paper we propose a test that discriminates among alternative models of bargaining for wages and employment. The test rests on a theoretical framework which encompasses both the labour demand and the efficient bargain models of wage and employment determination. It is based on testing the cross equation restrictions implied for the coefficie...

This paper considers alternative modes of stabilization of world-wide and relative levels of public debt. The analysis is in terms of a model of overlapping, infinitely lived households. Three methods are compared: tax finance, public- consumption finance and monetary finance. We show that a tax-financed world-wide public-debt stabilization results...

This paper investigates the implications of budgetary policies for consumption and economic growth. We present a model that combines the Arrow-Romer endogenous growth model with the Blanchard-Yaari overlapping-generations model. We show that a rise in government debt, financed by lump-sum taxes, increases the share of private consumption to nationa...

We extend the `rational partisan model' of inflation and unemployment by introducing inflation and unemployment dynamics. We investigate the case of Greece, which has had a polarized political system and a problem of persistently high inflation in the last two decades. High inflation can be attributed to the failure of political parties to precommi...

This paper investigates whether the structure of product markets in the industrial economies conforms to the assumptions of the two main benchmark models of international macroeconomics, namely the one-sector imperfect-substitutes model, and the two-sector model with non-traded goods. Our proposed test rests on the estimation of price equations and...

This paper investigates the relation between the rise in external debt and fiscal developments in Greece. We use an intertemporal model of optimal private-sector savings to argue that stabilization of the public debt/GDP ratio will be sufficient to stabilize the external debt/GDP ratio as well. Our results suggest that stabilization of the public d...

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In this paper I examine optimal monetary policy and the informational implications of the Phillips curve in a stochastic macroeconomic model. It is assumed that wages are not only indexed to the price level, but respond to the state of the labor market as well. If information about current disturbances is conveyed only through market prices, it tur...

This paper presents an investigation of the relations between wage adjustment, competitiveness, and aggregate fluctuations in the United Kingdom. It uses a real business cycle model based on the distinction between internationally traded and nontraded goods. The traded goods sector is assumed a price taker, and the focus is on the supply side. The...

This paper investigates the relation between the dynamics of inflation and exchange-rate regimes. It demonstrates that fixed exchange-rate regimes such as the international gold standard and the Bretton Woods gold-dollar standard appear to be associated with negligible persistence of inflation in the industrial economies, while regimes of managed e...

The persistently high rate of unemployment has probably been Western Europe's most important economic problem of the 1970s and 1980s. Average unemployment rose relentlessly between the early seventies and the mid-eighties, in contrast to the United States, where unemployment has displayed a normal cycle, around a slightly higher mean. This has led...

This paper provides a theoretical evaluation of two of the most influential recent proposals for international monetary reform, namely McKinnon's standard with fixed exchange rates and Williamson's target zones. The focus is on the implications of the proposals for short-run stabilization policy. The results suggest that in a first-best world where...

In this paper I examine the properties of monetary, nominal income and exchange rate targets, as stabilization policies in an open economy. Perfect capital mobility and a wide variety of transitory random shocks is assumed. Nominal wages are assumed to have been set in advance of the realization of the shocks. None of these rules is in general suff...

The 1970s have seen many developments in macroeconomics, that have in many ways transformed the way in which open economies are analysed. Among these is an increasing emphasis on the role of relative prices like real wages (relative price of labour), competitiveness (relative price of imports), the relative price of oil, real interest rates and oth...

This paper presents an investigation of the empirical significance of the Lucas Critique for the Phillips Curve. The investigation is carried out with annual historical time series for the United Kingdom (1857-1987) and the United States (1892-1987). The results, for two different models of the Phillips Curve, suggest that there are sizeable and st...

This paper presents an investigation of the relationship between fiscal policies, fundamental equilibrium real exchange rates and misalignments under fixed nominal exchange rate regimes like those proposed by McKinnon and supply-side fiscal policy. The medium-run effects operate mainly through the accumulation or decumulation of external assets. Th...

In the paper I examine the trade-offs between internal and external balance and the role of macroeconomic policy in Greece. I estimate and test versions of the two principal open economy macromodels: the imperfect-substitutes, one-sector model, and the two-sector model with nontraded goods. Both are real general equilibrium models that highlight th...

Unemployment persistence George S. Alogoskoufis and Alan Manning A comparison of unemployment across fourteen European countries, Japan and the US shows a great diversity of persistence: high in most of Europe outside the Scandinavian countries, Austria and Switzerland, low in Japan and the US. Three reasons for unemployment persistence are examine...

In this paper we present an investigation of unemployment persistence in Japan, the United States and fourteen European economies. We concentrate on the sources of slow adjustment in the labour market, such as sluggishness in labour demand and persistence in the employment and wage targets of wage-setters. Two structural characteristics seem to acc...

A comparison of unemployment across fourteen European countries, Japan and the US shows a great diversity of persistence: high in most of Europe outside the Scandinavian countries, Austria and Switzerland, low in Japan and the US. Three reasons for unemployment persistence are examined. First, employed workers may not care about the unemployed, and...

This paper considers optimal stabilization policy and nominal income targets for an open economy where the authorities are concerned both with unemployment and monetary instability. To fully achieve these two objectives the authorities must use both monetary and "supply-side" fiscal policy. It is shown that there is an optimal assignment of monetar...

In this paper, the author presents an econometric investigation of t he implications of the intertemporal substitution hypothesis for aggregate employment in the United States. The tests are based on a version of the hypothesis with time-separable preferences. On the basis of the evidence produced, the hypothesis is quite successful in explaining f...

In this paper the author sets up, estimates, and tests an explicit model of aggregate labor supply based on the intertemporal substitution hypothesis. The model is derived as the optimal decision rule of an infinitely-living household maximizing an intertemporal CES utility function over consumption and leisure. The evidence suggests that for aggre...

In this paper I estimate and test a model of the effects of competitiveness, oil prices and government expenditure on output fluctuations in the United Kingdom. The model is based on the distinction between traded and non-traded goods, the latter being produced in both the private and public sectors. The model can account for the properties of the...

In this paper I investigate the relationships between wage adjustment, competitiveness, macroeconomic policy and aggregate fluctuations in a small open economy. Based on a model of an economy producing both traded and non-traded goods, and assuming that the traded goods sector is competitive while the non-traded goods sector is oligopolistic, I sho...

In this paper I examine optimal monetary policy and the informational implications of the Phillips curve in a stochastic model of a small open economy. It is assumed that the economy produces both traded and non-traded goods, that capital mobility is perfect and that the economy faces a variety of unanticipated transitory disturbances to demand, su...

In this paper I examine issues of optimal stabilization in two types of world economy, a competitive one where all countries are small, and one where there is a Stackelberg leader. The focus is on the 1985 target zones proposal of Williamson, according to which there should be a periodic fixing of exchange rates at levels consistent with equilibriu...

This paper considers the determinants of consumer price inflation in Greece. It uses alternative models of a small open economy that allow for the influence of both cost and monetary factors. It turns out that the only period for which inflation in Greece was imported was 1970 to 1974. The small increase in average inflation between 1970-74 and 197...

In this paper we model the effects of macroeconomic policy in a semi-industrialized open economy. Greece is our case, but the model could apply to other similar economies with tightly controlled financial markets and comprehensive foreign exchange restrictions, where both the exchange rate and interest rates are administered prices. The model consi...

This paper extends the basic, multimarket model of Lucas (1973), to explicitly consider the labour market. It builds on an important distinction between the product wage, entering the decision function of firms, and the real wage, entering the decision function of workers. Because of the unobservability of the price level workers make forecasting e...

We introduce partial adjustments in the rational expectations model in the conventional way of empirical models. First, we solve the model for its full equilibrium solution, with lags in the supply function only. Then we assume that the actual variable (in our case the demand for money or the price level) moves sluggishly towards its full equilibri...

Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effect...

This paper contrasts the stabilisation programmes of Ireland and Greece in the 1980s and draws out lessons for the design of such programmes in small open economies. Programmes relying on government revenue increases are judged to be less likely to succeed than those based on expenditure reductions. The contribution which devaluation in the initial...