Freeing Greece from Capital Controls: Were the Restrictions Enforced in Time?
Research in International Business and Finance, Volume 37 (pp. 196-213)
32 Pages Posted: 25 Nov 2015 Last revised: 20 Feb 2016
Date Written: May 11, 2016
Recent developments in Greece have caused for the implementation of banking capital controls on the outflow of funds, a policy decision not uncommon, especially in emerging markets. However, the issues of the Greek economy, which seem to stem from the public sector but have been passed on to the banking sector, pose a unique challenge to researchers. In this paper, we employ VBanking, an object-oriented model for banking simulations to examine whether capital controls in Greece were enforced at the appropriate time. Additionally, we propose that the banking sector will not purge this regulation soon. Finally, we demonstrate the destructive effects of capital controls both on the financial system and on the real economy. We present the empirical results of our work, which suggest that the Greek authorities’ response to the deterioration of the banking sector was lagged.
Keywords: Capital controls, Greece, VBanking, banking regulation
JEL Classification: G01 G21 F38 E44
Suggested Citation: Suggested Citation