One of the most important problems facing Greece is the long-term and high-level unemployment rate. The Economic Adjustment Programmes (EAPs) focused on the supply side of the economy, aiming at the adjustment of prices and wages, draw on the classical economic model, as it is widely accepted that internal devaluation policies keep inflation low. This article attempts to examine whether the Keynesian theory and the Phillips Curve, which shows the relationship between unemployment and inflation, apply in the case of the Greek economy. We use descriptive statistics, ordinary least squares (OLS) and VAR Analysis to examine the relationship between the variables. According to the results, there is a negative correlation between unemployment and inflation in Greece, thus confirming the Phillips Curve hypothesis. Finally, results show that unemployment is less dependent on inflation compared with the past, and there are numerous other decisive factors affecting unemployment.

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Phillips Curve: The Greek Case

The Eurozone crisis and its aftershocks have forced the ECB to move into uncharted territory. Historically low interest rates and even negative deposit rates, various asset purchase programs, bank liquidity support, forward guidance, and recently open-ended quantitative easing (QE) have all been used to address tail risks from sovereign and bank sector shocks and deflation risks. The ECB has become the subject of criticism because of these measures. Some have argued that it has been behind the curve, acting too late and not aggressively enough. Others have argued that the central bank has already gone too far. The verdict is still out, but the fact is that the ECB’s crisis management has so far avoided the worst and the euro has survived for now, but the Eurozone’s recovery has been very weak.

Athanasios Vamvakidis

Papers

ECB Monetary Policy and the Euro during the Crisis