Employment and inflation responses to an exchange rate shock in a calibrated model
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Citation:Bermingham, Colin. 'Employment and inflation responses to an exchange rate shock in a calibrated model'. - Economic & Social Review, Vol. 37, No. 1, Spring, 2006, pp. 27-46, Dublin: Economic & Social Research Institute
Ireland has no ability to affect the exchange rate through interest rates following the adoption of the euro. This paper provides a theoretically transparent method for analysing the impact of an exchange rate shock on employment and the aggregate price level in this context. The split between the tradable and non-tradable sectors of the economy is highlighted. The model is used to examine a specific exchange rate shock. The results of this calibration suggest that a sustained increase of 15 per cent in the value of the euro would reduce employment by 1.5 per cent and the domestic price level by about 7.3 per cent.
Publisher:Economic & Social Research Institute