Working Paper: NBER ID: w22370
Authors: Pierre-Olivier Gourinchas; Thomas Philippon; Dimitri Vayanos
Abstract: We provide an empirical and theoretical analysis of the Greek Crisis of 2010. We first benchmark the crisis against all episodes of sudden stops, sovereign debt crises, and lending boom/busts in emerging and advanced economies since 1980. The decline in Greece’s output, especially investment, is deeper and more persistent than in almost any crisis on record over that period. We then propose a stylized macro-finance model to understand what happened. We find that a severe macroeconomic adjustment was inevitable given the size of the fiscal imbalance; yet a sizable share of the crisis was also the consequence of the sudden stop that started in late 2009. Our model suggests that the size of the initial macro/financial imbalances can account for much of the depth of the crisis. When we simulate an emerging market sudden stop with initial debt levels (government, private, and external) of an advanced economy, we obtain a Greek crisis. Finally, in recent years, the lack of recovery appears driven by elevated levels of non-performing loans and strong price rigidities in product markets.
Keywords: Greek crisis; macroeconomic analysis; sudden stops; sovereign debt; lending booms
JEL Codes: E2; E3; E4; E5; E6; F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal imbalances (E62) | Output drop (Y10) |
| Fiscal consolidation (E62) | Output drop (Y10) |
| Sudden stop (F32) | Output drop (Y10) |
| High leverage and low price flexibility (D43) | Depth of the crisis (H12) |
| Elevated nonperforming loans and rigidities in product markets (E69) | Lack of recovery in 2014 and 2015 (E65) |