Foreign and Public Deficits in Greece: In Search of Causality
Levy Economics Institute Working Paper No. 771
29 Pages Posted: 6 Aug 2013
Date Written: August 2013
The paper discusses the trajectories of the Greek public deficit and sovereign debt over the last three decades and its connection to the political and economic environment of the same period. We pay special attention to the causality between the public and the foreign deficit. We argue that from 1980 to 1995 causality ran from the public deficit to the foreign deficit, but that due to the European monetary unification process and the adoption of the common currency, causality has reversed since. This hypothesis is tested and verified econometrically using both Granger Causality and Co-Integration analyses.
Keywords: Greece, crisis, public debt, twin deficits, imbalances
JEL Classification: E62, F21, F34, F41
Suggested Citation: Suggested Citation