The “Vicious Circle” Hypothesis: The Greek Case
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The “Vicious Circle” Hypothesis: The Greek Case
Credit and Capital Markets – Kredit und Kapital, Vol. 16 (1983), Iss. 3 : pp. 394–404
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Panayotopoulos, Dimitris
References
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(1) Bank for International Settlements, Forty-Sixth and Forty-Seventh Annual Reports (Basel 1976 and 1977).
Google Scholar -
(2) Bardarich, Michael: “Inflation and Monetary Accomodation in the Pacific Basin”, F. R. Bank of San Francisco, Economic Review (September 1978), pp. 23-36.
Google Scholar -
(3) Bilson, John F. O.: “The ‘Vicious Circle’ Hypothesis”, I.M.F., Staff Papers, Vol. 26 (March 1979), pp. 1-37.
Google Scholar -
(4) Box, G. E. P. and Jenkins, G. M.: “Time Series Analisis, Forecasting and Control, San Francisco 1970.
Google Scholar -
(5) Brooks, S. J.: “The Experience of Floating Exchange Rates” in Britain’s Trade and Exchange-Rate Policy, by R. Majior (ed.), National Institute of Economic and Social Research, London 1980.
Google Scholar -
(6) Crockett, Andrew D. and Morris Goldstein: “Inflation Under Fixed and Flexible Exchange Rates”, I.M.F., Staff Papers, Vol. 23 (November 1976), pp. 509 - 44.
Google Scholar -
(7) Granger, C. W.J.: “Investigating Causal Relation by Econometric Models and Cross-Spectral Methods”, Econometrica, Vol 37 (July 1969), pp. 424 - 38.
Google Scholar -
(8) Mixcon, J. W., L. J. Pratt and M. S. Wallace: “The Short-run Transmission of U.S. Price Changes Under Fixed and Flexible Exchange Rates: Evidence from the U.K.”, Southern Economic Journal, Vol. 47 (April 1981), pp. 1072-79.
Google Scholar -
(9) Panayotopoulos, Dimitris: “The External Value of Greek Drachma and its Impact on the Domestic Price Level”, SPOUDAI, Quarterly Economic Journal, Vol. 30, No. 2, pp. 369 - 80. - (10) Williams, D., C. A. E. Goodhart, and D. H. Gowland: “Money, Income, and Causality: The U.K. Experience”, A.E.R., Vol. 66 (June 1976), pp. 417-23
Google Scholar
Abstract
The “Vicious Circle” Hypothesis: The Greek Case
It is evident from the results of the empirical estimation that the exchange rates after 1973 do not passively reflect changes of the domestic price level. On the contrary, the exchange rate is an independent factor in feeding domestic price inflation, through the influence it exerts on the relative prices of importable and exportable goods and services. The statistical investigation has shown, as well, that changes in the money supply do affect the exchange rate. This fact reinforces the above findings, i.e. the exchange rate changes lead to domestic price inflation. After 1973 Greece has “got” to a vicious circle. The depreciation/price inflation spiral, which is in operation since then, has to be broken down. However, it has to be admitted that such a task is not an easy operation. Strong policies have to be implemented that, besides actions which are focusing on the adjustment of the economy itself, will attempt to establish confidence and to reverse the expectations of the public. The adjustment procees the country has to undertake, prolonged and problematic itself, is further complicated since the country is operating under the system of flexible exchange rates