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Employment and Inflation Responses to an Exchange Rate Shock in a Calibrated Model

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Author Info
Colin Bermingham (Central Bank and Financial Services Authority of Ireland, Dublin)
Abstract

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.

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File URL: http://www.esr.ie/Vol37_1/02_Birmingham_article.pdf
File Format: application/pdf
File Function: First version, 2006
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Publisher Info
Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 37 (2006)
Issue (Month): 1 ()
Pages: 27-46
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:eso:journl:v:37:y:2006:i:1:p:27-46

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Web page: http://www.esr.ie

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  1. Kenny, Geoff & McGettigan, Donal, 1996. "Exchange Rate Pass-Through and Irish Import Prices," Research Technical Papers 6/RT/96, Central Bank & Financial Services Authority of Ireland (CBFSAI). [Downloadable!]
  2. Baker, Terence J. & Fitz Gerald, John & Honohan, Patrick, 1996. "Economic Implications for Ireland of EMU," Research Series, Economic and Social Research Institute (ESRI), number PRS28.
  3. Barry, F, 1997. "Dangers for Ireland of and EMU without the UK : Some Calibration Results," Papers 97/20, College Dublin, Department of Political Economy-.
  4. Cooley, Thomas F, 1997. "Calibrated Models," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 55-69, Autumn.
  5. Devereux, Michael B. & Engel, Charles, 2002. "Exchange rate pass-through, exchange rate volatility, and exchange rate disconnect," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 913-940, July. [Downloadable!] (restricted)
    Other versions:
  6. Slevin, Geraldine, 2003. "Structural Model Of Irish Inflation," Research Technical Papers 1/RT/03, Central Bank & Financial Services Authority of Ireland (CBFSAI). [Downloadable!]
  7. Amit Kara & Edward Nelson, 2002. "The Exchange Rate and Inflation in the UK," Discussion Papers 11, Monetary Policy Committee Unit, Bank of England. [Downloadable!]
    Other versions:
  8. Kenny, Geoff & McGettigan, Donal, 1996. "Non-Traded, Traded and Aggregate Inflation in Ireland: Further Evidence," Research Technical Papers 5/RT/96, Central Bank & Financial Services Authority of Ireland (CBFSAI). [Downloadable!]
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