EIRE Mod- A DSGE Model for Ireland

We develop ´EIRE Mod (Elementary Irish Real Economy Model), a core DSGE model suitable for policy analysis in Ireland. The model’s underlying structure, with a distinction between the traded and non-traded sectors and an import content of exports component, is designed to replicate the highly open nature of the Irish economy. Ireland’s membership of EMU is accounted for through exogenous nominal interest and exchange rates. New Keynesian features, such as sticky prices and wages, mean the model’s dynamics can replicate the sluggish reaction of economic variables found in the empirical literature. The model is calibrated in order to match key observed ratios in the Irish data. The usefulness of the model as a policy tool is highlighted through the simulation of various structural reforms aimed at boosting efficiency and competitiveness. Our results show that overall, reforms aimed at boosting productivity and price and wage competitiveness lead to the desired increase in output. Nevertheless, particular care should be paid to the effect of domestic reforms on Ireland’s external competitiveness and employment. This work is the first step towards the development of a suite of DSGE models for Ireland. Extensions of the core ´EIRE Mod will be necessary to fully capture key aspects of the economy’s adjustment path following these reforms. Accordingly, the results presented in this initial paper should be treated with caution.