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An Analysis of the Transmission Mechanism of Monetary Policy in Ireland

  • Bredin, Don

    (Central Bank and Financial Services Authority of Ireland)

  • O’Reilly, Gerard

    (Central Bank and Financial Services Authority of Ireland)

This paper examines the impact of monetary policy shocks on a number of key economic variables, including output, prices and the exchange rate. The paper draws on recent techniques used in the structural vector autoregression literature. Our 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. Hence, there is an absence of an exchange rate or forward bias puzzle, which are prevalent in other studies. Overall the response of macroeconomic variables to a change in the interest rate are very small in magnitude.

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File URL: http://www.centralbank.ie/publications/documents/1RT01.pdf
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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 1/RT/01.

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Length: 28 pages
Date of creation: Mar 2001
Date of revision:
Handle: RePEc:cbi:wpaper:1/rt/01
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  17. Scott, Alasdair, 2003. "APPLIED MACROECONOMETRICS Carlo A. Favero Oxford University Press, 2001," Macroeconomic Dynamics, Cambridge University Press, vol. 7(02), pages 313-315, April.
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