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The near-death experience of the Celtic Tiger: a model-driven narrative from the European sovereign debt crisis

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  • Gärtner, Manfred
  • Griesbach, Björn
  • Mennillo, Giulia

Abstract

We narrate Ireland’s recent odyssey from the pride and envy of Europe to kneeling supplicant through the eyes of an econometric model of the government bond market. The exercise suggests that, in essence, two developments triggered and propelled Ireland’s drift towards sovereign default: first, the global financial crisis that drove Ireland into a severe recession with collapsing tax revenues and increasing unemployment; second, a gap between the post-2007 increase in sovereign default risk that can actually be linked to macroeconomic fundamentals and the much bigger increase in perceived risk reflected by high interest rates and communicated by the massive downgrades of Ireland’s sovereign debt rating.

Suggested Citation

  • Gärtner, Manfred & Griesbach, Björn & Mennillo, Giulia, 2013. "The near-death experience of the Celtic Tiger: a model-driven narrative from the European sovereign debt crisis," Economics Working Paper Series 1321, University of St. Gallen, School of Economics and Political Science.
  • Handle: RePEc:usg:econwp:2013:21
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1321.pdf
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    References listed on IDEAS

    as
    1. Thomas Herndon & Michael Ash & Robert Pollin, 2014. "Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff," Cambridge Journal of Economics, Oxford University Press, vol. 38(2), pages 257-279.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    3. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
    4. repec:kap:iaecre:v:17:y:2011:i:3:p:288-299 is not listed on IDEAS
    5. Sebastian Dellepiane & Niamh Hardiman, 2011. "Governing the Irish Economy: A Triple Crisis," Working Papers 201103, Geary Institute, University College Dublin.
    6. Manfred G?rtner & Bj?rn Griesbach, 2017. "Rating Agencies, Self-Fulfilling Prophecy and Multiple Equilibria? An Empirical Model of the European Sovereign Debt Crisis 2009-2011," Business and Economic Research, Macrothink Institute, vol. 7(1), pages 199-226, June.
    7. Manfred Gärtner & Björn Griesbach & Florian Jung, 2011. "PIGS or Lambs? The European Sovereign Debt Crisis and the Role of Rating Agencies," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 17(3), pages 288-299, August.
    8. Renate Neubäumer, 2011. "Eurokrise: Keine Staatsschuldenkrise, sondern Folge der Finanzkrise," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 91(12), pages 827-833, December.
    9. Karl Whelan, 2011. "Ireland’s Sovereign Debt Crisis," Working Papers 201109, School of Economics, University College Dublin.
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    Cited by:

    1. Marcell Zoltán Végh, 2014. "Has Austerity Succeeded in Ameliorating the Economic Climate? The Cases of Ireland, Cyprus and Greece," Social Sciences, MDPI, Open Access Journal, vol. 3(2), pages 1-20, June.

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    More about this item

    Keywords

    Financial crisis; Ireland; public debt; sovereign ratings; government budget; empirical model;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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