The impact of economic uncertainty and inflation uncertainty on the Greek economy

Abstract

We provide estimates of economic uncertainty and inflation uncertainty for the Greek economy, and consider their time-varying impact on the corresponding macroeconomic variables, i.e. GDP growth and inflation. We find that, in both cases, the degree of uncertainty varies over time. Ιts impact on the underlying variable also fluctuates and is statistically significant and negative during both the global financial crisis and the Greek sovereign debt crisis, as well as during the COVID-19 pandemic. Thus, during these periods, uncertainty weighs on the economy’s fundamentals. Our findings have a number of policy implications, including that the extraordinary policy measures taken to contain the economic impact of the COVID-19 pandemic should be withdrawn gradually and with due caution, as any increase in uncertainty may have an adverse effect on economic activity and a deflationary impact on prices.