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Please use this identifier to cite or link to this item: http://hdl.handle.net/2262/60020

Title: Ireland in EMU: more shocks, less insulation?
Author: Honohan, Patrick
Leddin, Anthony J.
Keywords: European Monetary Union
Ireland
Economic shocks
Interest rates
Monetary system
Issue Date: 2006
Publisher: Economic & Social Research Institute
Citation: Honohan, Patrick; Leddin, Anthony J. 'Ireland in EMU: more shocks, less insulation?'. - Economic & Social Review, Vol. 37, No. 2, Summer/Autumn, 2006, pp. 263-294, Dublin: Economic & Social Research Institute
Abstract: Despite anchoring the Irish monetary system to a common zone-wide exchange rate and interest rate, EMU has triggered sizeable exchange rate and especially interest rate shocks to the Irish economy (albeit not appreciably greater than those experienced under previous exchange rate regimes). Interest rate movements have deviated widely from what a standard Taylor monetary policy rule would have counselled – though here again the deviations have been no worse in this regard than those of the previous regime. The most important shock has been associated with the large and sustained initial fall in nominal interest rates as EMU began. Through mechanisms which we formally model, the interest rate fall has had a lasting effect on property prices, construction activity and the capacity of the labour market to absorb sizeable net immigration, despite a sharp deterioration in wage competitiveness since 2002. As the long drawn-out impact of this shock subsides, the failure of the wage-bargaining system promptly to claw back the loss of competitiveness resulting from exogenous exchange rate movements is increasingly likely to show up in weaker aggregate employment performance.
Description: An earlier version was presented at the Conference on Macroeconomic Perspectives in Honour of Brendan M. Walsh, held at University College Dublin on 7 October, 2005
URI: http://hdl.handle.net/2262/60020
ISSN: 00129984
Appears in Collections:Economic and Social Review Archive: Complete Collection 1969-
The Economic and Social Review, Vol. 37, No. 2, Summer/Autumn, 2006

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