IDEAS home Printed from
   My bibliography  Save this paper

Explaining Irish Inflation during the Financial Crisis


  • Bermingham, Colin

    (Central Bank of Ireland)

  • Coates, Dermot

    (Central Bank of Ireland)

  • Larkin, John

    (Central Bank of Ireland)

  • O'Brien, Derry

    (Central Bank of Ireland)

  • O'Reilly, Gerard

    (Central Bank of Ireland)


The recent financial crisis resulted in a steep contraction in the domestic economy together with a sharp decline in inflation. The Phillips curve model of inflation argues that inflation should be negatively related to economic performance and this would seem to be a potential explanatory factor in the behaviour of Irish inflation during the financial crisis. However, Ireland is a very open economy and the Phillips curve has been criticised as an inappropriate model of inflation for Ireland on the basis that inflation is primarily imported from abroad with little role for domestic factors. We formally assess what role domestic economic activity has on inflation in Ireland. We find that while external factors are important in terms of explaining Irish inflation, there are episodes when the domestic economy has an important influence on inflation. In addition, our preferred Phillips curve model predicts actual Irish inflation during the financial crisis quite accurately.

Suggested Citation

  • Bermingham, Colin & Coates, Dermot & Larkin, John & O'Brien, Derry & O'Reilly, Gerard, 2012. "Explaining Irish Inflation during the Financial Crisis," Economic Letters 13/EL/12, Central Bank of Ireland.
  • Handle: RePEc:cbi:ecolet:13/el/12

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    2. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
    3. Alan B. Krueger & Andreas Mueller, 2011. "Job Search, Emotional Well-Being and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 1-81.
    4. Laurence Ball & Sandeep Mazumder, 2011. "Inflation Dynamics and the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 337-405.
    5. Llaudes, Ricardo, 2005. "The Phillips curve and long-term unemployment," Working Paper Series 441, European Central Bank.
    6. Kenny, Geoff & McGettigan, Donal, 1999. "Modelling Traded, Non-traded and Aggregate Inflation in a Small Open Economy: The Case of Ireland," Manchester School, University of Manchester, vol. 67(1), pages 60-88, January.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Stefan Gerlach & Reamonn Lydon & Rebecca Stuart, 2016. "Unemployment and inflation in Ireland: 1926–2012," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 10(3), pages 345-364, September.
    2. Byrne, Stephen & Conefrey, Thomas, 2017. "A Non-Employment Index for Ireland," Economic Letters 09/EL/17, Central Bank of Ireland.
    3. William Gatt, 2016. "Time variation, asymmetry and threshold effect in Malta's Phillips curve," CBM Working Papers WP/02/2016, Central Bank of Malta.
    4. Gerlach, Stefan & Lydon, Raemonn & Stuart, Rebecca, 2014. "The Phillips Curve in Ireland: 1935 - 2012," CEPR Discussion Papers 10010, C.E.P.R. Discussion Papers.
    5. Owen Grech & Noel Rapa, 2016. "STREAM: A structural macro-econometric model of the Maltese economy," CBM Working Papers WP/01/2016, Central Bank of Malta.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbi:ecolet:13/el/12. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fiona Farrelly). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.