Assessing the internal devaluation policy implemented in Greece in an empirical stock‐flow consistent model

Abstract Αn empirical stock‐flow consistent model is constructed aiming to investigate the impact of the internal devaluation policy on the real GDP, the unemployment rate and the sector financial balances. The private expenditure of the aggregate private sector is affected by functional income distribution, which in turn is determined by the minimum wage and flexible employment, among other factors. The model is then applied on the Greek economy. Findings suggest that the implementation of internal devaluation fueled the destabilizing dynamics at play and hindered the export capacity of the economy through a negative effect of lackluster demand on productivity.