Irish macroeconomic performance under different exchange rate regimes

Abstract

Reveals that Ireland has experienced six major changes in exchange rate regimes over the period 1797 to today. Provides a historical perspective on this experience. Indicates that Irish nominal variables have been affected by the exchange rate regime and that membership of exchange rate regimes has both affected and has been used to justify policies followed by the Irish government. States that, structurally, the Irish economy has undergone dramatic change, one of the reasons being government policy, which has altered the exchange rate options open to Ireland. Notes however, that continued labour market and trade linkages with the UK have implications both for the transition and membership of a future European Monetary Union.Johansen (1988) cointegration testing procedure and error correction modelling on annual data for the period 1958‐1990. These modern techniques produce empirical results which do not support the public capital hypothesis. Suggests several reasons to explain this outcome, and outlines possible policy implications.