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Non-Traded, Traded and Aggregate Inflation In Ireland (Part 2)

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Author Info

  • Kenny, Geoff

    (Central Bank and Financial Services Authority of Ireland)

  • McGettigan, Donal

    (Central Bank and Financial Services Authority of Ireland)

Abstract

This paper attempts to shed further light on the primary determinants of Irish inflation. By way of introduction, the paper provides a critical assessment of the Irish literature to date within the context of several key international theories. Several areas of controversy surface from this review: there exists little or no consensus regarding (a) the main causes of consumer price inflation in Ireland (b) the role of wages in the inflation process and (c) the role played by domestic factors in determining Irish inflation. The main body of the paper attempts to address each of these questions directly. It does so by formulating a model which tests for potentially divergent price determination in the traded and non-traded sectors of the economy. The analysis was facilitated by the construction of a new dataset which decomposed an underlying measure of consumer prices into its traded and non-traded components. For traded price inflation, the results suggest the strong role of the exchange rate and foreign inflation in conformity with the small open economy view. In the case of non-traded prices, the data rejected a strict version of the small open economy view. Nonetheless the strong role of the exchange rate and foreign prices was confirmed even for the non-traded sector. Furthermore, in the case of both traded and non-traded inflation, there was also significant evidence that real wage growth in excess of that which is warranted by productivity gains can lead to higher inflation. As would be expected, the results for aggregate inflation fall somewhere between those for its traded and non-traded components.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 3B/RT/96.

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Length: 44 pages
Date of creation: Dec 1996
Date of revision:
Handle: RePEc:cbi:wpaper:3b/rt/96

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References

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  2. Geary, Patrick T. & McCarthy, Colm, 1976. "Wage and price determination in a labour-exporting economy : The case of Ireland," European Economic Review, Elsevier, vol. 8(3), pages 219-233, October.
  3. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
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  19. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
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Citations

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Cited by:
  1. Slevin, Geraldine, 2003. "Structural Model Of Irish Inflation," Research Technical Papers 1/RT/03, Central Bank of Ireland.
  2. Honohan, Patrick & FitzGerald, John & Honohan, Patrick, 1996. "Adapting to Regime Change," Book Chapters, in: Baker, Terence J. (ed.), Economic Implications for Ireland of EMU, pages 10-36 Economic and Social Research Institute (ESRI).
  3. Kenny, Geoff & McGettigan, Donal, 1997. "A Monetary Approach to the Analysis of Inflation in Ireland," Research Technical Papers 4/RT/97, Central Bank of Ireland.
  4. Morgenroth, Edgar & FitzGerald, John & FitzGerald, John, 2006. "Summary and Conclusions," Book Chapters, in: Morgenroth, Edgar (ed.), Ex-Ante Evaluation of the Investment Priorities for the National Development Plan 2007-2013, chapter 24, pages 317-333 Economic and Social Research Institute (ESRI).
    • Baker, Terence J. & FitzGerald, John & Honohan, Patrick & FitzGerald, John & Honohan, Patrick, 1996. "Summary and Conclusions," Book Chapters, in: Baker, Terence J. (ed.), Economic Implications for Ireland of EMU, chapter 12, pages 339-352 Economic and Social Research Institute (ESRI).
  5. Kenny, Geoff & McGettigan, Donal, 1996. "Exchange Rate Pass-Through and Irish Import Prices," Research Technical Papers 6/RT/96, Central Bank of Ireland.
  6. Kenny, Geoff & McGettigan, Donal, 1996. "Non-Traded, Traded and Aggregate Inflation in Ireland: Further Evidence," Research Technical Papers 5/RT/96, Central Bank of Ireland.

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