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Ireland's great depression

  • Alan G. Ahearne
  • Finn E. Kydland
  • Mark A. Wynne

We argue that Ireland experienced a great depression in the 1980s comparable in severity to the better known and more studied depression episodes of the interwar period. Using the business cycle accounting framework of Chari, Kehoe and McGrattan (2005), we examine the factors that lead to the depression and the subsequent recovery in the 1990s. We calculate efficiency, labor, investment and government wedges, and evaluate the contribution of each to the downturn and subsequent recovery. We find that the efficiency wedge on its own can account for a significant portion of the downturn, but predicts a stronger recovery in output. The labor wedge also helps account for what happened during the depression episode. We also find that the investment wedge played no role in the depression.

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Paper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 0510.

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Date of creation: 2005
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Handle: RePEc:fip:feddwp:05-10
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  1. Suparna Chakraborty, 2004. "Accounting for the 'Lost Decade' in Japan," Macroeconomics 0408009, EconWPA.
  2. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," NBER Working Papers 1060, National Bureau of Economic Research, Inc.
  3. Barro, Robert J & Sahasakul, Chaipat, 1986. "Average Marginal Tax Rates from Social Security and the Individual Income Tax," The Journal of Business, University of Chicago Press, vol. 59(4), pages 555-66, October.
  4. Nathan S. Balke & Mark A. Wynne, 1995. "Are deep recessions followed by strong recoveries? Results for the G-7 countries," Working Papers 9509, Federal Reserve Bank of Dallas.
  5. David Carey & Harry Tchilinguirian, 2000. "Average Effective Tax Rates on Capital, Labour and Consumption," OECD Economics Department Working Papers 258, OECD Publishing.
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