Underlying this policy, both in Greece and elsewhere during the 1990s, was the belief that the adoption of a visible exchange-rate anchor could enhance the credibility of the dissinflationary effort because (1) the traded-goods component of the price level could be stabilised and (2) wage-settling and price-setting behaviour were restrained. I will not go into details of the operation of the hard-drachma policy.
Our estimates suggest that the impact of the new purchases on economic activity and on inflation, through the contraction of term premia and the transmission to the yields of all financial assets, can be much bigger today than that of a cut in the official rates.