This thesis aims to analyze the dynamics of Exchange Rate Pass-Through (ERPT) in Greece, with a specific focus on the period from 2002 to 2022, a timeframe that commences post the dual circulation period of the Euro introduction. It aims to explore the extent to which fluctuations in the exchange rate, influenced by European Central Bank (ECB) policies, have been transmitted to domestic prices in Greece. The underlying, initial hypothesis posits a significant correlation between ERPT in Greece and key shifts in ECB monetary policy, especially during critical periods such as the Eurozone crisis and the economic developments that followed.
The economic importance of this investigation is underscored by Greece’s unique economic trajectory within the Eurozone. As a nation that has navigated considerable economic volatility and has been at the forefront of policy-driven economic restructuring, understanding the impact of external monetary policies on its domestic price stability is of paramount importance. This inquiry is particularly pertinent given the ongoing debates over the efficacy of uniform monetary policies within the diverse economic landscapes of the Eurozone, especially when it comes to the vast historical and current differences between southern and northern European economies.
Moreover, this thesis draws methodologically and contextually from seminal works in the field. For instance, Campa and Goldberg’s "Exchange Rate Pass-Through into Import Prices" (2005) provides a foundational framework for analyzing ERPT in relation to import prices and monetary policy shifts, employing linear regression models that form a useful methodological foundation for this study. Additionally, insights from Gopinath and Itskhoki’s "Frequency of Price Adjustment and Pass-through" (2010) are pivotal, highlighting the impact of domestic price stickiness and frequency of adjustment on ERPT. These studies collectively inform the understanding of how exchange rates, monetary policy, and domestic pricing behaviors interact, providing helpful foundational context on which this thesis aims to build on.
The unique contribution of this thesis is its in-depth focus on Greece from 2002 to 2022, a period marked by Greece’s full integration into the Eurozone, financial crises, and economic recovery phases. By examining ERPT in the context of ECB policy decisions over these two decades, this research not only enriches the general comprehension of ERPT in a monetary union but also sheds light on the specific responsiveness of the Greek economy to external monetary shocks. Utilizing linear regression and possibly vector autoregression (VAR) models, as well as employing ECB interest rate data, and potentially other ECB policy indicators, exchange rates, and Greek price level indices, the study aims to clarify the nuanced dynamics between Greece’s unique economic phases and broader European monetary policy decisions.