A dynamic macroeconomic analysis of the Greek crisis. Analysis of the current problems of the Greek economy using an open-economy dynamic macroeconomic model that incorporates public debt

Abstract

The main goal of this paper is to explain the reasons behind the weak economic situation of Greece. Through the analysis of the evolution of several macroeconomic variables, it is possible to offer the reader a clear understanding about the magnitude of the Greek economic contraction in comparison with the partners of the Euro Area. In addition, I estimate the evolution of the Greek economy under certain different scenarios. In order to do it, a dynamic macroeconomic model is going to be developed and solved through the Minimal State Variable (MSV) solution and using econometric techniques to calibrate the model and adjust it to the specific characteristics of Greece. I run four different simulations to analyze how the economy would react to either a fiscal shock or a risk premium shock.