"Dangers for Ireland of an EMU without the UK": a reply to John FitzGerald

Abstract

In his comment on my 1997 paper John FitzGerald (JFG) makes the following points: (i) While the ESRI study on EMU, henceforth ESRI (1996), found no evidence of my hypothesis of downward nominal wage rigidity, this could not be ruled out and so my paper raises questions worthy of discussion; (ii) in my calibration exercises I used long-run labour-demand elasticities rather than the short-run elasticities that JFG argues are more appropriate; (iii) I apply too high a weight to German prices in the determination of the Irish CPI, while ESRI (1996) suggests that UK prices (in Irish pounds) are essentially all that matter; and (iv) I ignore the ESRI use of the Gerlach methodology to evaluate the cost of giving up the exchange rate option. I will deal with each of these points in turn.