An evaluation of macroeconomic policies in Greece within an optimal control theory framework
This study evaluates the effectiveness of fiscal (and monetary) policies on a set of macroeconomic objectives, giving explicit consideration to the alternative modes by which the budget deficits (or surpluses) are financed. The extent to which quantitative reductions in the share of the public sector is compatible with these objectives is also examined. The evaluation of optimal macroeconomic policies is undertaken in the context of the Greek economy, since the financial aspects of the budget have not received the necessary attention. The method of analysis is carried out within an optimization framework which employes an econometric model of the Greek economy estimated over the period 1957-75, and a quadratic objective function depicting the desires of the policy-makers. The specific characteristics of the Greek economy necessary for the construction of the econometric model and the specification of the objective function are discussed in Chapter 2. Chapter 3 deals with the theoretical considerations of the macroeconomic model and presents the optimization approach persued in the study. Chapter 4 presents the econometric model and discusses its dynamic characteristics and structure. The specification of the objective function and the optimization results are discussed in Chapter 5. The major findings of the study are summarized in Chapter 6.