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Separating the Wheat from the Chaff: Icelandic and Irish Policy Responses to the Banking Crisis

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  • Howden, David

Abstract

When the tales of the Icelandic and Irish crises are told, they are framed as if one country did everything right to exit recession. In this paper I assess their recovery policies and find that the truth lies somewhere in the middle. By allowing its banking system to suffer substantial losses, Iceland shielded its citizens from the costly debt overhand apparent in Ireland. Ireland’s commitment to open capital markets and price deflation has allowed trade flows to remain robust, and relative prices to realign to signal sustainable production plans to entrepreneurs. These lessons provide a roadmap for other countries entering similar crises in the future.

Suggested Citation

  • Howden, David, 2013. "Separating the Wheat from the Chaff: Icelandic and Irish Policy Responses to the Banking Crisis," MPRA Paper 79600, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79600
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    References listed on IDEAS

    as
    1. Philip Lane, 2011. "The Irish Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp356, IIIS.
    2. Philip Du Caju & Theodora Kosma & Martina Lawless & Julian Messina & Tairi Rõõm, 2013. "Why firms avoid cutting wages: Survey evidence from European firms," Working Paper Research 251, National Bank of Belgium.
    3. Philipp Bagus & David Howden, 2011. "Monetary equilibrium and price stickiness: Causes, consequences and remedies," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 24(4), pages 383-402, December.
    4. Stephen Kinsella, 2012. "Is Ireland really the role model for austerity?," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 36(1), pages 223-235.
    5. Philip Du Caju & Theodora Kosma & Martina Lawless & Julián Messina & Tairi Rõõm, 2015. "Why Firms Avoid Cutting Wages," ILR Review, Cornell University, ILR School, vol. 68(4), pages 862-888, August.
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    Cited by:

    1. Howden, David, 2013. "The Rise and Fall of the Icelandic Economy," MPRA Paper 79603, University Library of Munich, Germany.
    2. David Howden & Amadeus Gabriel, 2015. "The Interest Rate Brake on Maturity Transformation," Journal of Economic Issues, Taylor & Francis Journals, vol. 49(4), pages 1100-1111, October.
    3. Bagus, Philipp & Howden, David, 2014. "Fiscal Considerations of Central Bank Recapitalization," MPRA Paper 79606, University Library of Munich, Germany.
    4. Howden, David, 2013. "The Icelandic and Irish Banking Crises: Alternative Paths to a Credit-Induced Collapse," MPRA Paper 79602, University Library of Munich, Germany.

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    More about this item

    Keywords

    subprime crisis; Iceland; Ireland; 2008 crisis; capital controls;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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