What was the Role of Monetary Policy in the Greek Financial Crisis?

To what extent is Greece's current economic crisis the result of monetary policy misalignment between the European Central Bank and Greece? We use a risk adjusted Taylor Rule to examine Greece's monetary policy from 1993 to the present. We argue that the monetary policy of the Bank of Greece satisfies several criteria for a good monetary policy. The monetary policy of the ECB, on the other hand, exhibits characteristics that suggest it had a destabilizing effect on the economy of Greece. That is, whereas the ECB could have balanced excessive fiscal stimulus with a contractionary monetary policy, the ECB’s actual expansionary monetary policy may have reinforced the fiscal stimulus and led to further destabilization.