Economic Policy Uncertainty, Political Uncertainty and the Greek Economic Crisis

130 Pages Posted: 19 Apr 2018  

Gikas A. Hardouvelis

University of Piraeus; Centre for Economic Policy Research (CEPR)

Georgios Karalas

LSE - Department of Finance; University of Piraeus

Dimitrios Karanastasis

University of Piraeus - Department of Banking and Financial Management

Panagiotis Samartzis

University of Piraeus - Department of Banking and Financial Management

Date Written: April 3, 2018

Abstract

We use textual analysis to construct an index of economic policy uncertainty (EPU) for Greece from 1/1998 to 12/2017, similar to other international EPU indices. We also construct indices of political uncertainty (POLU) and economic uncertainty (EU), plus EPU sub-indices related to fiscal policy (EPUF), monetary policy (EPUM), banking (EPUB), currency or Grexit possibility (EPUC), and pension policy (EPUP). The indices are positively correlated yet retain substantial idiosyncratic variability. With the exception of EPUM, they all rose during the international and subsequent Greek crisis. There is also positive correlation of EPU with international EPU indices, which rose in the international crisis but, as expected, declined during the Greek crisis.

Positive shocks to EPU and to the other indices are associated with a subsequent decline in investment, industrial production, GDP, employment, household deposits, economic sentiment and the stock market, and with an increase in bond yields. These shocks go a long way to explain not only the direction but the magnitude of the changes in macro and financial variables during the crisis. A VAR forecast error variance decomposition over a three-year horizon suggests uncertainty together with bond yields may explain not only the depth but the length of the crisis as well.

Keywords: Economic Policy Uncertainty, Political Uncertainty, Economic Uncertainty, Macro-Economy, Greece, Grexit, Debt Crisis, Banking Crisis, Pension Crisis, Tax Uncertainty, Fiscal Crisis, Currency Crisis, Bond Spreads, Economic Depression

JEL Classification: D80, E50, E66, G18

Suggested Citation

Hardouvelis, Gikas A. and Karalas, Georgios and Karanastasis, Dimitrios and Samartzis, Panagiotis, Economic Policy Uncertainty, Political Uncertainty and the Greek Economic Crisis (April 3, 2018). Available at SSRN: https://ssrn.com/abstract=3155172 or http://dx.doi.org/10.2139/ssrn.3155172

Gikas A. Hardouvelis (Contact Author)

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece
+32010 4142323 (Phone)
+3210 6724848 (Fax)

HOME PAGE: http://www.eurobank.gr

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Georgios Karalas

LSE - Department of Finance ( email )

United Kingdom

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Dimitrios Karanastasis

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Panagiotis Samartzis

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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