The role of monetary policy in a developing country: the case of Greece, 1950-1970
The purpose of this study is to assess the degree of importance of monetary policy in a developing economy taking the case of Greece in the period 1950-1970, as a case study. The institutional framework of the Greek monetary sector is examined to determine the policy tools available to the monetary authorities. In addition, the relationship between the various monetary variables and their interaction with the real sector is considered in detail in order to provide the necessary analytical basis for evaluating the monetary policy pursued over the twenty year period. It is argued that the problems faced by a country such as Greece, which is at an intermediate stage of development, are of .a type which cannot be effectively tackled by anything' short of a comprehensive and multidimensional long term policy. Within the framework of such a policy the role of monetary policy is the auxiliary one of ensuring that funds are available for financing this long term policy. Even the short term stabilisation role of monetary measures is restricted by the institutional and economic conditions prevailing in Greece. The allocation of a leading role to monetary measures, instead of a complementary one, is criticised on the grounds that monetary policy cannot serve as an adequate substitute for a general policy often involving direct government intervention. Disproportionate reliance on monetary measures, it is argued, has meant that few of the basic structural weaknesses of the economy have been removed with consequent retardive effects on growth.\ud Consequently, rather than attributing an exaggerated importance to monetary measures, it is maintained that monetary policy should be viewed in its correct perspective as an important but auxiliary tool of an overall policy for growth.