ABSTRACT
This chapter explains the role of monetary management in the adjustment and its impact on capital flows, and then examines the credibility of the exchange rate policy. The challenges, however, for macroeconomic policies still remain considerable in further reducing inflation towards the Maastricht targets. On the monetary policy front, Greece followed a 'pragmatic' monetarist approach based on intermediate monetary or exchange rate targets to maintain price stability, while at the same time supporting economic growth, without prejudice to primary objectives. The chapter looks at the behaviour of fiscal and income policies during the disinflation process. The effectiveness of stabilisation programmes depends on the role of credibility factors. The imperfect credibility of disinflation programmes depends on a variety of elements, such as internal inconsistency of the programme, incomplete or asymmetric information about the 'true' intentions of the authorities' commitment to disinflate, and an unstable political environment.
