Ireland Report

1. Historical record of evolution of key variables, like inflation, exchange rate, and interest rates, including inferences about central bank stance and credibility.

-Inflation: In Nov 2005, Central bank of Ireland overvaulted 40% to 60% of residential property market, so the stress test that Central bank performed were not reflecting the real severity of recession (Wikipedia).  Although CPI increases from 2005 to 2007, the inevitable result of ignoring warning of financial decline causes property collapse in 2009 and banking system in Ireland meltdown. Ireland fell into ten months straight recession and twenty-two months substantial deflation incurred (Wikipedia).  In the peak time, Ireland’s deflation rate was 6.6% (ifsra.ie). However, Ireland suffered greater magnitude than other European countries. Central Bank was forced to offer unconditional guarantee deposit to save the economy. Soon the European commission realized the problem Ireland had is no supervision of large financial institutions.  In Nov 2014, European central bank formally took control of divisional central bank, including central bank of Ireland (Wikipedia).  Since then, the inflation rate remain stable.

Source: https://en.wikipedia.org/wiki/Central_Bank_of_Ireland

http://www.ifsra.ie/publications/Documents/09RT12.pdf

[pic 1]

-Exchange rate: Ireland’s policy makers maintain a fixed exchange rate and free capital flows. They know the impossible trilogy.  Policy maker can only pick two out of three: Independent monetary policy, fixed exchange rate, and free capital movement. Because Ireland is a fixed-exchange rate system, it cannot has its own monetary policy to reduce interest rate to help its banks and economy to recover. Ireland tried to leave euro zone and accepted an international bailout in 2010 to have more flexibility on policymaking. However, it causes budget deficit, surge of unemployment rate, and devalue of Irish currency.  

Source: http://www.historyandpolicy.org/policy-papers/papers/ireland-and-the-perils-of-fixed-exchange-rates

[pic 2]

Historical record of evolution of key variables, like inflation, exchange rate, and interest rates, including inferences about central bank stance and credibility.  

 Interest rates

Ireland's benchmark interest rate is set by the European Central Bank. The benchmark interest rate In the Euro Area was last recorded at 0 percent. Interest Rate in the Euro Area averaged 2.15 percent from 1998 until 2017, reaching an all-time high of 4.75 percent in October of 2000 and a record low of 0 percent in March of 2016.