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Global and Domestic Modeling of Macroeconomic Shocks: A GVAR Analysis of Ireland

Author

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  • O'Grady, Michael

    (Central Bank of Ireland)

  • Rice, Jonathan

    (Central Bank of Ireland)

  • Walsh, Graeme

    (Central Bank of Ireland)

Abstract

This paper studies the effects of external macroeconomic shocks on Ireland. Using a weighting scheme based on international trade linkages, we apply a global vector autoregressive model (GVAR) to investigate the degree of shock transmission between Ireland and a number of advanced countries / regions. Constructing a global model of 25 countries over the 1980q1-2016q1 sample period, we examine responses to five distinct shocks: a US interest rate hike; a decline in UK GDP; a depreciation of UK exchange rates; a reduction in Chinese output; and a global economic slowdown. Results suggest that Ireland is relatively more exposed to shocks to the UK economy, than either the euro area or the US, while it is relatively more insulated to movements in oil prices.

Suggested Citation

  • O'Grady, Michael & Rice, Jonathan & Walsh, Graeme, 2017. "Global and Domestic Modeling of Macroeconomic Shocks: A GVAR Analysis of Ireland," Research Technical Papers 09/RT/17, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:09/rt/17
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    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/09-rt-17-global-and-domestic-modeling-of-macroeconomic-shocks.pdf?sfvrsn=7
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    References listed on IDEAS

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    Cited by:

    1. Christine Arriola & Caitlyn Carrico & David Haugh & Nigel Pain & Elena Rusticelli & Donal Smith & Frank van Tongeren & Ben Westmore, 2018. "The Potential Macroeconomic and Sectoral Consequences of Brexit on Ireland," OECD Economics Department Working Papers 1508, OECD Publishing.
    2. Daragh Clancy, 2019. "US corporate tax rate cuts: Spillovers to the Irish economy," Working Papers 38, European Stability Mechanism.

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    More about this item

    Keywords

    Global VAR; macro-financial linkages; global spillovers;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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