IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Non-Traded, Traded and Aggregate Inflation In Ireland (Part 2)

  • Kenny, Geoff

    (Central Bank and Financial Services Authority of Ireland)

  • McGettigan, Donal

    (Central Bank and Financial Services Authority of Ireland)

This paper attempts to shed further light on the primary determinants of Irish inflation. By way of introduction, the paper provides a critical assessment of the Irish literature to date within the context of several key international theories. Several areas of controversy surface from this review: there exists little or no consensus regarding (a) the main causes of consumer price inflation in Ireland (b) the role of wages in the inflation process and (c) the role played by domestic factors in determining Irish inflation. The main body of the paper attempts to address each of these questions directly. It does so by formulating a model which tests for potentially divergent price determination in the traded and non-traded sectors of the economy. The analysis was facilitated by the construction of a new dataset which decomposed an underlying measure of consumer prices into its traded and non-traded components. For traded price inflation, the results suggest the strong role of the exchange rate and foreign inflation in conformity with the small open economy view. In the case of non-traded prices, the data rejected a strict version of the small open economy view. Nonetheless the strong role of the exchange rate and foreign prices was confirmed even for the non-traded sector. Furthermore, in the case of both traded and non-traded inflation, there was also significant evidence that real wage growth in excess of that which is warranted by productivity gains can lead to higher inflation. As would be expected, the results for aggregate inflation fall somewhere between those for its traded and non-traded components.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.centralbank.ie/publications/Documents/03BRT96.pdf
Download Restriction: no

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 3B/RT/96.

as
in new window

Length: 44 pages
Date of creation: Dec 1996
Date of revision:
Handle: RePEc:cbi:wpaper:3b/rt/96
Contact details of provider: Postal: P.O. Box No. 559, Dame Street, Dublin 2
Phone: (01) 671 6666
Fax: (01) 671 6561
Web page: http://www.centralbank.ie
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Thomas J. Sargent, 1973. "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 429-480.
  2. De Gregorio, Jose & Giovannini, Alberto & Wolf, Holger C., 1994. "International evidence on tradables and nontradables inflation," European Economic Review, Elsevier, vol. 38(6), pages 1225-1244, June.
  3. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics : Differences and common themes," European Economic Review, Elsevier, vol. 37(4), pages 719-754, May.
  4. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  5. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  6. Bankim Chadha & Paul R. Masson & Guy Meredith, 1992. "Models of Inflation and the Costs of Disinflation," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 395-431, June.
  7. Parkin, Michael, 1973. "The Short-Run and Long-Run Trade-Offs Between Inflation and Unemployment in Australia," Australian Economic Papers, Wiley Blackwell, vol. 12(21), pages 127-44, December.
  8. Callan, Tim & FitzGerald, John, 1989. "Price Determination in Ireland: Effects of Changes in Exchange Rates and Exchange Rate Regimes," Papers ME179, Economic and Social Research Institute (ESRI).
  9. Edison, Hali J & Klovland, Jan Tore, 1987. "A Quantitative Reassessment of the Purchasing Power Parity Hypothesis: Evidence from Norway and the United Kingdom," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 2(4), pages 309-33, October.
  10. Atish R. Ghosh & Holger C. Wolf, 1994. "Pricing in International Markets: Lessons from The Economist," Working Papers 94-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. Mehra, Yash P, 1991. "Wage Growth and the Inflation Process: An Empirical Note," American Economic Review, American Economic Association, vol. 81(4), pages 931-37, September.
  12. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," Working Papers 94-19, New York University, Leonard N. Stern School of Business, Department of Economics.
  13. Anthony Cassese & James R. Lothian, 1983. "The Timing of Monetary and Price Changes and the International Transmission of Inflation," NBER Chapters, in: The International Transmission of Inflation, pages 58-82 National Bureau of Economic Research, Inc.
  14. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
  15. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  16. Kenneth A. Froot & Kenneth Rogoff, 1991. "The EMS, the EMU, and the Transition to a Common Currency," NBER Working Papers 3684, National Bureau of Economic Research, Inc.
  17. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
  18. Laidler, David E W & Parkin, J Michael, 1975. "Inflation: A Survey," Economic Journal, Royal Economic Society, vol. 85(340), pages 741-809, December.
  19. Nickell, Stephen, 1990. "Inflation and the UK Labour Market," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 26-35, Winter.
  20. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  21. Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-48, December.
  22. Jeffrey R. Campbell & Ellen R. Rissman, 1994. "Long-run labor market dynamics and short-run inflation," Economic Perspectives, Federal Reserve Bank of Chicago, issue Mar, pages 15-27.
  23. Geary, Patrick T. & McCarthy, Colm, 1976. "Wage and price determination in a labour-exporting economy : The case of Ireland," European Economic Review, Elsevier, vol. 8(3), pages 219-233, October.
  24. Himarios, Daniel, 1987. "Devaluation, Devaluation Expectations and Price Dynamics," Economica, London School of Economics and Political Science, vol. 54(215), pages 299-313, August.
  25. David E. Laidler, 1988. "Taking Money Seriously," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 687-713, November.
  26. Kenny, Geoff, 1996. "Capacity Utilisation in Irish Manufacturing," Research Technical Papers 2/RT/96, Central Bank of Ireland.
  27. Johansen, Soren & Juselius, Katarina, 1994. "Identification of the long-run and the short-run structure an application to the ISLM model," Journal of Econometrics, Elsevier, vol. 63(1), pages 7-36, July.
  28. Browne, Francis X, 1982. "Modelling Export Prices and Quantities in a Small Open Economy [The Supply and Demand for Exports: A Simultaneous Approach]," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 346-47, May.
  29. Surrey, M J C, 1989. "Money, Commodity Prices and Inflation: Some Simple Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(3), pages 219-38, August.
  30. Gordon, Robert J, 1988. "The Role of Wages in the Inflation Process," American Economic Review, American Economic Association, vol. 78(2), pages 276-83, May.
  31. Franz, Wolfgang & Gordon, Robert J., 1993. "German and American wage and price dynamics: Differences and common themes," Discussion Papers 2, University of Konstanz, Center for International Labor Economics (CILE).
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cbi:wpaper:3b/rt/96. 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: (Richard Smith)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.