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Managing an Economy Under EMU: The Case of Ireland

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  • John Fitz Gerald

Abstract

Ireland's experience of limited monetary independence within the EMS indicated that such independence was bought at the price of significant risk premia on interest rates. This experience informed its decision to join EMU, and membership has resulted in the expected credibility gain. Since the start of EMU inflation in consumer prices in Ireland has risen well above the EU average. However, this need not be a matter of concern within a monetary union. Instead, what should concern the Irish administration is a high rate of inflation in wage rates and domestic asset prices chiefly housing. While monetary policy is no longer available as an instrument of domestic policy, fiscal policy can still be used to effectively target these problems. The lessons of the first three years of membership is that the focus of fiscal policy within Ireland needs to change, and that the EU institutions also need to focus more clearly on the needs of the Euro area rather than on those of individual regional economies.

Suggested Citation

  • John Fitz Gerald, 2001. "Managing an Economy Under EMU: The Case of Ireland," The World Economy, Wiley Blackwell, vol. 24(10), pages 1353-1371, November.
    • Handle: RePEc:bla:worlde:v:24:y:2001:i:10:p:1353-1371
    DOI: 10.1111/1467-9701.00415
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    References listed on IDEAS

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    1. Honohan, Patrick & Conroy, Charles, 1994. "Irish Interest Rate Fluctuations in The European Monetary System," Research Series, Economic and Social Research Institute (ESRI), number GRS165.
    2. Baker, Terence J. & FitzGerald, John & Honohan, Patrick, 1996. "Economic Implications for Ireland of EMU," Research Series, Economic and Social Research Institute (ESRI), number PRS28.
    3. John FitzGerald & Fergal Shortall, 1998. "Exchange Rate Changes and the Transmission of Inflation," Papers WP096, Economic and Social Research Institute (ESRI).
    4. Irvine, Ian J., 1984. "A Study of New House Prices in Ireland in the Seventies," Research Series, Economic and Social Research Institute (ESRI), number GRS118.
    5. Bradley, John & Whelan, Karl, 1997. "The Irish expansionary fiscal contraction: A tale from one small European economy," Economic Modelling, Elsevier, vol. 14(2), pages 175-201, April.
    6. Bradley, John & Whelan, Karl & Wright, Jonathan, 1995. "HERMIN Ireland," Economic Modelling, Elsevier, vol. 12(3), pages 249-274, July.
    7. Karl Whelan, 1991. "Ricardian equivalence and the Irish consumption function : the evidence re-examined," Open Access publications 10197/215, School of Economics, University College Dublin.
    8. Duffy, David & FitzGerald, John & Kearney, Ide & Smyth, Diarmaid, 1999. "Medium-Term Review 1999-2005, No. 7," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR07, march.
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    Cited by:

    1. Patrick Honohan & Philip R. Lane, 2003. "Divergent inflation rates in EMU [‘European financial integration and equity returns: a theory-based assessment’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 18(37), pages 357-394.
    2. Reddan, Paul & Rice, Jonathan, 2017. "Exchange Rate Pass-Through to Domestic Prices," Economic Letters 08/EL/17, Central Bank of Ireland.
    3. Servaas Deroose & Sven Langedijk & Werner Roeger, 2004. "Reviewing adjustment dynamics in EMU: from overheating to overcooling," European Economy - Economic Papers 2008 - 2015 198, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. repec:esr:chaptr:jacb200210 is not listed on IDEAS
    5. Patrick Honohan & Anthony J. Leddin, 2006. "Ireland in EMU - More Shocks, Less Insulation?," The Economic and Social Review, Economic and Social Studies, vol. 37(2), pages 263-294.
    6. Bergin, Adele & Duffy, David & Eakins, John & McCoy, Daniel, 2002. "Forecasting the Public Finances and the Macroeconomic Context for Budget 2003," Papers BP2003/1, Economic and Social Research Institute (ESRI).
    7. repec:esr:chaptr:jacb200114 is not listed on IDEAS
    8. Honohan, Patrick, 2001. "European and International Constraints on Irish Fiscal Policy," Papers BP2002/2, Economic and Social Research Institute (ESRI).
    9. Conall MacCoille & Daniel McCoy, 2002. "Economic Adjustment Within EMU - Ireland’s Experience," The Economic and Social Review, Economic and Social Studies, vol. 33(2), pages 179-193.
    10. Bergin, Adele & Conefrey, Thomas & FitzGerald, John & Kearney, Ide & Znuderl, Nusa, 2013. "The HERMES-13 macroeconomic model of the Irish economy," Papers WP460, Economic and Social Research Institute (ESRI).

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