This paper proposes and applies to the London Business School (LBS) model a general methodology for the design of macroeconomic policy using large rational expectations models. Design proceeds through the following four stages: first, a small, linear representation of the original large,...

An investigation of the problems of policy formation has to take account of the way in which expectations may be formed. The assumption of rationality is often made on the grounds that there is no reason to assume that views of the future display any particular bias. Some authors take this...

The paper discusses the process of financial liberalization in Greece and the impact it is likely to have on the conduct of monetary policy. To examine the effectiveness of exchange rate controls in Greece during periods of intense downward pressure on the drachma, we study the behaviour of...

This paper re-examines the standard ‘unbiasedness’ hypothesis in foreign exchange markets, according to which the forward premium should be an unbiased predictor of the future change of the spot exchange rate. If traders are heterogeneous, they may consist of ‘fundamentalists’ who...

Throughout the post-war period Greece has faced a unique, and unfavourable, situation consisting of: (i) a perimetric location away from major European markets; and (ii) distorted economic relations as its northern borders were designed to be real barriers to communication and trade with...

The paper presents a theoretical analysis of the relationship between privatization and public deficit finance. We examine the optimal magnitude of public asset sales and the extent to which privatization can be used to reduce taxes, or, to retire public debt, for two cases. In the first,...

The paper compares the cyclical behaviour of the Greek economy to that of the other EC economies, using quarterly and annual data since 1960 and the Real Business Cycle model as a theoretical framework. The evidence suggests that there are remarkable similarities in these features despite...

The paper re-examines the efficiency hypothesis in the foreign exchange market. The traditional efficiency testing equations are reviewed and a model is developed that incorporates Bayesian revisions in the form of devaluation expectations. A number of propositions regarding the pattern of the...

*The European Union will enter Stage Three of Economic and Monetary Union (EMU) in 1999. The development of euro financial markets and thickness externalities in the use of the euro as means of payment will be the major factors determining the importance of the euro as an international currency....

This paper presents an investigation of the relationship between fiscal policies, fundamental equilibrium real exchange rates and misalignments under fixed nominal exchange rate regimes like those proposed by McKinnon and supply-side fiscal policy. The medium-run effects operate mainly through...