Some preliminary thoughts on the macroeconomic effects of capital controls in Greece.
Greece Focus Notes
31 July 2015
The latest financial and political upheaval in Greece leaves the domestic economy in a state of flux. The present situation shows the seeds for another recessionary year, featuring depressed consumption, cancellation of investment projects, weak exports and high unemployment. And, although the recent Euro Summit agreement on Greece and the subsequent termination of the banking holiday constitute steps in the right direction and put an end on the various GRexit scenaria, the negative ramifications of the recent turmoil may well persist for an extended period of time. In this note we focus on the potential impact of capital controls on the real economy. In order to address this issue, first we define the shock and then we describe the propagation mechanism through which it impacts the economy.