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An analysis of the transmission mechanism of monetary policy in Ireland

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  • Don Bredin
  • Gerard O'Reilly

Abstract

This paper examines the impact of a monetary policy shock on output, prices and the exchange rate for Ireland during its participation in the EMS. The paper draws on recent techniques used in the structural vector autoregression literature. Results suggest that an exogenous temporary increase in the short-term interest rate leads to a decline in output and prices with the latter responding more sluggishly. In addition, a higher interest rate leads to an immediate appreciation of the domestic exchange rate and a subsequent depreciation of the currency. Exchange rate or forward bias puzzle, which are prevalent in other studies, are not found. The robustness of these results is checked under a number of alternative identifications schemes

Suggested Citation

  • Don Bredin & Gerard O'Reilly, 2004. "An analysis of the transmission mechanism of monetary policy in Ireland," Applied Economics, Taylor & Francis Journals, vol. 36(1), pages 49-58.
  • Handle: RePEc:taf:applec:v:36:y:2004:i:1:p:49-58
    DOI: 10.1080/0003684042000177198
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    Cited by:

    1. Michiel van Leuvensteijn & Christoffer Kok Sørensen & Jacob A. Bikker & Adrian A.R.J.M. van Rixtel, 2013. "Impact of bank competition on the interest rate pass-through in the euro area," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1359-1380, April.
    2. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
    3. Tomas Havranek & Marek Rusnak, 2013. "Transmission Lags of Monetary Policy: A Meta-Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 9(4), pages 39-76, December.
    4. Ching-Chun Wei, 2008. "The analysis of interest rate mean and volatility spillover to the industrial production index and stock markets: The case of China," Economics Bulletin, AccessEcon, vol. 3(65), pages 1-14.
    5. Chance Ngamanya Mwabutwa & Nicola Viegi & Manoel Bittencourt, 2016. "Evolution Of Monetary Policy Transmission Mechanism In Malawi: A Tvp-Var Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(1), pages 33-55, March.
    6. repec:ebl:ecbull:v:3:y:2008:i:65:p:1-14 is not listed on IDEAS
    7. Dermot Hodson, 2003. "The Exchange Rate as an Adjustment Mechanism - A Structural VAR Approach to the Case of Ireland," The Economic and Social Review, Economic and Social Studies, vol. 34(2), pages 151-172.
    8. Jelena Zubkova & Egils Kauzens & Ivars Tillers & Martins Prusis, 2002. "Financial Market in Latvia," Working Papers 2002/02, Latvijas Banka.

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