The 2010 Grexit: A counterfactual analysis using a Global VAR
Sammanfattning: The issue whether Greece should leave the euro is important for both Greece and the rest of Europe. As the wrong policy might be very costly it is important that the issue is carefully examined. This thesis analyses a counterfactual scenario where Greece leaves the eurozone. The Global VAR framework is extended to model a currency union by jointly conditioning the exchange rates and short-term interest rates of the eurozone economies. With this extension the Global VAR makes promising forecasts, and might be a useful practice to improve the forecasts of the model. With the framework the effects of a Grexit are analysed. The result is much in line with the expectations for most variables, but not convincing regarding the exchange rate as the model forecasts an appreciating Greek currency.
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