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American Economic Review Vol. 113 No. 9 2023

The Macroeconomics of the Greek Depression

Gabriel Chodorow-Reich1; Loukas Karabarbounis2; Rohan Kekre3

1 Department of Economics, Harvard University (email: ) · 2 Department of Economics, University of Minnesota, and Research Department, Federal Reserve Bank of Minneapolis (email: ) · 3 Booth School of Business, University of Chicago (email: )

Abstract

Greece experienced a boom until 2007, followed by a collapse of unprecedented magnitude and persistence. We assess the sources of the boom and the bust, using a rich estimated dynamic general equilibrium model. External demand and government consumption fueled the boom in production, whereas transfers fueled the boom in consumption. Different from the standard narrative, wages and prices declined substantially during the bust. Tax policy accounts for the largest fraction of the bust in production, whereas uninsurable risk accounts for the bust in consumption and wages. We assess how the composition of fiscal adjustment and bailouts affected the crisis.

DOI
10.1257/aer.20210864
Volume
113
Issue
9
Pages
2411-2457
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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