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Managing an Economy Under EMU: The Case of Ireland

  • John Fitz Gerald

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. Copyright Blackwell Publishers Ltd 2001.

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Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 24 (2001)
Issue (Month): 10 (November)
Pages: 1353-1371

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Handle: RePEc:bla:worlde:v:24:y:2001:i:10:p:1353-1371
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  1. Baker, Terence J. & FitzGerald, John & Honohan, Patrick, 1996. "Economic Implications for Ireland of EMU," Research Series, Economic and Social Research Institute (ESRI), number PRS28.
  2. 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, December.
  3. Bradley, John & Whelan, Karl & Wright, Jonathan, 1995. "HERMIN Ireland," Economic Modelling, Elsevier, vol. 12(3), pages 249-274, July.
  4. 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.
  5. 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.
  6. Honohan, Patrick & Conroy, Charles, 1994. "Irish Interest Rate Fluctuations in The European Monetary System," Research Series, Economic and Social Research Institute (ESRI), number GRS165.
  7. John FitzGerald & Fergal Shortall, 1998. "Exchange Rate Changes and the Transmission of Inflation," Papers WP096, Economic and Social Research Institute (ESRI).
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