Proceedings of World Business Research Conference

Proceedings of World Business Research Conference
21 - 23 April 2014, Novotel World Trade Centre, Dubai, UAE, ISBN: 978-1-922069-48-1
Monetary and Fiscal Policy Interaction in the Greece: A
Cointegration Approach
Hounaida Daly* and Mounir Smida**
Recently, monetary authorities have increasingly focused on implementing
policies to ensure price stability and strengthen central bank independence.
Simultaneously, in the fiscal area, market development has allowed public debt
managers to focus more on cost minimization. This « divorce » of monetary and
debt management functions in no way lessens the need for effective coordination
of monetary and fiscal policy if overall economic performance is to be optimized
and maintained in the long term. This paper analyzes these issues based on a
review of the relevant literature and of country experiences from an institutional
and operational perspective. The main sphere of interaction between monetary
and fiscal policies relates to the financing of the budget deficit and monetary
management. The particular stance of monetary policy affects the capacity of the
government to finance the budget deficit by changing the cost of debt service and
limiting or expanding the available sources of financing. The evidence does not
let hear strong political interactions in Greece, and supports the idea that the
monetary policy is more stabilizing in its influence on the economic activity than
the budget policy.
JEL Codes: E52, E58, E62 and E61
* PhD student in Economic Sciences at Faculty of Economics Sciences and Management of Sousse.
Research Unit: MO2FID (E.49/C.06). E mail:
** Professor in Economics Sciences at Faculty of Economic Sciences and Management of Sousse.
Director of Research Unit: (MO2FID) (E.49/C.06).