Pierre-Olivier Gourinchas, University of California at Berkeley and NBER; Thomas Philippon, New York University and NBER; and Dimitri Vayanos, London School of Economics and NBER

The Analytics of the Greek Crisis

This paper presents an interim and analytical report on the Greek Crisis of 2010. The Greek crisis presents a number of important features that sets it apart from the typical sudden stop, sovereign default, or lending boom/bust episodes of the last quarter century. Gourinchas, Philippon, andVayanos provide an analytical account of the Greek crisis using a rich model designed to capture the main financial and macro linkages of a small open economy. Using the model to parse through the wreckage, they uncover the following main findings: (a) Greece experienced a more prolonged and severe decline in output per capita than almost any crisis on record since 1980; (b) the crisis was significantly backloaded, thanks to important financial assistance mechanisms; (c) a sizable share of the crisis was the consequence of the sudden stop that started in late 2009; (d) the severity of the crisis was compounded by elevated initial levels of exposure (external debt, public debt, domestic credit), vastly in excess of levels observed in typical emerging economies. In summary: Greece experienced a typical Emerging Market Sudden Stop crisis, with the initial exposure levels of an Advanced Economy.