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Economic Policy Uncertainty in Small Open Economies: a Case Study in Ireland

Author

Listed:
  • Rice, Jonathan

    (Allied Irish Banks)

Abstract

The main contribution of this paper is the construction of a measure of Economic Policy Uncertainty (EPU) for Ireland, following the methodology of Baker, Bloom and Davis (2016). The paper also sheds light on the implications of heightened uncertainty for Ireland, a small open economy operating within monetary union. Exogenous domestic uncertainty shocks foreshadow persistent declines in Irish investment and employment, with no clear response by the ECB. On the other hand, no such decline in demand is observed following global uncertainty shocks, largely resulting from an accommodative monetary policy stance by the ECB. Results from this paper suggest that policy uncertainty shocks have negative and persistent effects on Irish real economic activity, only when interest rates do not react, or are constrained. Common identification problems in the literature are also discussed and suggestions are made for future work in the area.

Suggested Citation

  • Rice, Jonathan, 2020. "Economic Policy Uncertainty in Small Open Economies: a Case Study in Ireland," Research Technical Papers 01/RT/20, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:01/rt/20
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    File URL: https://centralbank.ie/docs/default-source/publications/research-technical-papers/01rt20-economic-policy-uncertainty-in-small-open-economies-a-case-study-of-ireland-(rice).pdf?sfvrsn=4
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    Cited by:

    1. Arigoni, Filippo & Lenarčič, Črt, 2020. "The impact of trade policy uncertainty shocks on the Euro Area," MPRA Paper 100832, University Library of Munich, Germany.
    2. Lucey, Brian M. & Vigne, Samuel A. & Yarovaya, Larisa & Wang, Yizhi, 2022. "The cryptocurrency uncertainty index," Finance Research Letters, Elsevier, vol. 45(C).

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other

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