Employment and Inflation Responses to an Exchange Rate Shock in a Calibrated Model
Ireland has no ability to affect the exchange rate through interest rates since the adoption of the euro. This paper provides a theoretically transparent method for analysing the impact of an exchange rate shock on employment and inflation in this context. The split between the tradable and non-tradable sectors of the economy is highlighted. A small, calibrated model adapted from Barry (1997) is used in the paper. The equations in this paper are derived under less restrictive assumptions making the results more widely applicable. The parameters of the model can be changed easily to reflect the structure of the economy and to conduct scenario analyses. A practical application is provided using a specific calibration and set of assumptions and the sensitivity of the results to the calibrated parameters and assumptions is discussed.
|Date of creation:||Apr 2005|
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- Anderton, Robert, 2003. "Extra-euro area manufacturing import prices and exchange rate pass-through," Working Paper Series 0219, European Central Bank.
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- Eleanor Doyle, 2004. "Exchange rate pass-through in a small open economy: the Anglo-Irish case," Applied Economics, Taylor & Francis Journals, vol. 36(5), pages 443-455.
- Kenny, Geoff & McGettigan, Donal, 1996. "Non-Traded, Traded and Aggregate Inflation in Ireland: Further Evidence," Research Technical Papers 5/RT/96, Central Bank of Ireland.
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