Posts in the "Macroeconomics" category

External shocks - change the detail but no need to rewrite the productivity playbook

Posted on November 04, 2016 by Tom McDonnell


The vulnerability of the Republic of Ireland economy to external shifts and shocks was brought home in 2016 in at least two ways. While the potential Brexit from the European Union (EU) has unclear political implications, it has almost certainly negative economic implications. At the same time, the opening shots of an international or at least EU clamp down on aggressive tax avoidance has exposed the fragility of Irish industrial policy to external policy shifts.

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Permanent link | Categories: Government SpendingInvestmentMacroeconomics

Internal Devaluation and the Irish Crisis

Posted on September 23, 2016 by Tom McDonnell

Beckett Bridge - Photo Credit: Michael Foley Photograph Flickr creative commons page:
Photo Credit: Michael Foley Photograph Flickr creative commons page:

The European Trade Union Institute have published a policy inBrief by Tom McDonnell discussing the Irish economic crisis and its aftermath. You can find it here.

Permanent link | Categories: Government SpendingIncomeJobsLabour costsMacroeconomicsWages

Opening Statement to the Budgetary Oversight Committee

Posted on September 13, 2016 by Tom McDonnell

Public sector employment - NERI blog on public sector employment in the Republic of Ireland
NERI blog on public sector employment in the Republic of Ireland

The Select Committee on Budgetary Oversight commenced a series of pre budget hearings last week with contributions from DKM, NERI, the Irish Central Bank, and the ESRI. The hearings will continue this week with contributions from the Fiscal Council and from the European Commission and then next week with contributions from the Minister for Public Expenditure and Reform, the Revenue Commissioners and the Minister for Finance. The pre budget report is due to be finalised on the 29th of September in advance of the budget.

It will be interesting to see whether the report has an influence on the policies announced on budget day. In any event the Committee should become more influential in future years once it beds down as a year long presence.

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Permanent link | Categories: Government SpendingInvestmentMacroeconomics

Fiscal Space: A Short Primer

Posted on June 23, 2016 by Tom McDonnell

Government Buildings - Budgeting for the future
Budgeting for the future

The parameters for Budget 2017 are set by the requirements of the preventive arm of the Stability and Growth Pact (SGP). The preventive arm is assessed under two main pillars. These are the Structural Balance Rule and the Expenditure Benchmark Rule.

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Permanent link | Categories: Government SpendingInvestmentMacroeconomicsTaxation

UK Budget 2016 - Ominous Revisions

Posted on March 16, 2016 by Paul Mac Flynn

Today's statement in the House of Commons marked George Osborne's eighth budget in just under six years as Chancellor. Whilst there were many eye-catching policies such as a tax on sugary drinks and reforms to ISAs, they could not distract from some major revisions to UK economic growth. The Office for Budget Responsibility cut their forecast of UK GDP growth in 2016/17 to 2%, down from 2.4% outlined last November. GDP forecasts are cut further by an average of 0.3% out to 2020, putting significant strain on the Chancellors commitments on the public finances.

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Permanent link | Categories: Government SpendingMacroeconomicsNorthern Ireland Taxation

Fiscal Rules, Fiscal Space and Growth Friendly Fiscal Policies

Posted on February 12, 2016 by Tom McDonnell


The reformed Stability and Growth Pact (SGP) and the creation of the Irish Fiscal Advisory Council (IFAC) have enhanced supervision of Irish fiscal policy and reduced the range of feasible fiscal stances an Irish government can promise or take. This new reality was brought into sharp focus with the recent debate about 'fiscal space'. The fiscal space represents the projected amount of additional resources available for public spending over a period of time.

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Permanent link | Categories: Government SpendingInvestmentMacroeconomicsTaxation

Euro Crisis: Causes and Some Solutions

Posted on February 01, 2016 by Tom McDonnell

50 cent 2

The euro crisis may be burning at a low heat but that doesnt mean the euro area is any better designed than it was six months ago. The latest NERI inBrief and accompanying working paper and presentation discuss the causes of the euro crisis. They argue that long-term success and stability for the currency union depends on the implementation of a package of complementary policy reforms. Policies discussed include:

  • The creation of a conditional lender of last resort for sovereigns
  • The construction of a full and genuine banking union
  • The establishment of a small centralised fiscal mechanism funded from some hypothecated Eurozone tax (but not full fiscal federalism)
  • The application of  differentiated inflation targets and better mechanisms to ensure better coordination between countries.

Permanent link | Categories: Macroeconomics

Euro Crisis: Causes and Fixes

Posted on January 15, 2016 by Tom McDonnell

Euro coin - Euro coin
Euro coin

The euro crisis was and remains a system problem. The roots of the crisis lie in a series of structural flaws in the architecture of European Monetary Union including in its design, construction and implementation. Notable design flaws include the absence of a centrally run banking union to accompany currency union, the absence of a fiscal mechanism to soften asymmetric shocks, and the absence of a conditional Lender of Last Resort (LOLR) for sovereign borrowers. An LOLR is an institution with the authority and resources to provide funding to otherwise solvent borrowers suffering from liquidity problems. The purpose of an LOLR within a monetary system is to prevent liquidity problems degenerating into solvency crises. Alongside these design flaws was an inadequate system of surveillance and regulatory mechanisms with too narrow a focus on overall price stability at the Eurozone level at the expense of other macroeconomic indicators such as localised credit expansion, financial stability, current account imbalances and economic growth and employment trends. As a result, destabilising credit flows and the build-up of regional imbalances within the currency union were allowed to expand unchecked. In this paper I argue that long-term success and stability for the currency union depends on the implementation of a package of complementary policy reforms to change the union’s flawed institutional architecture. Issues considered include the desirability of mandating a conditional LOLR for sovereign borrowers; the need for a banking union with a centralised authority mandated to supervise, regulate, and where appropriate shut down insolvent financial institutions; and the creation of a European deposit insurance corporation. Finally, the potential role for a centralised insurance fund available to member states to smooth out and ameliorate the severity of localised negative economic shocks and recessions is considered.

Permanent link | Categories: Macroeconomics

The Flawed currency union

Posted on November 27, 2015 by Tom McDonnell


In the NERI's Quarterly Economic Facts we often compare Irish performance against that of other EU or Euro area countries, for example in areas like the general government balance. While an interesting exercise in itself it is sometimes more useful to sit back and reflect on the bigger picture. The fact is that the Euro area has, in aggregate, underperformed against the United States, as well as against those EU member states outside of the Euro area.

It is important to consider the implications for Ireland of increasing financial, budgetary, and economic policy integration within the European Union.

What will this integration look like?

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Permanent link | Categories: Macroeconomics

UK Autumn Statement and Spending Review

Posted on November 25, 2015 by Paul Mac Flynn

The Autumn Statement delivered today by Chancellor of The Exchequer George Osborne will in all likelihood be remembered for one significant U-turn. The dramatic reversal on planned changes to tax credits represents a big win for opponents of the policy in Westminster and beyond. The total proposed saving from tax credits was to be £4.4bn UK wide. The changes would have affected over 120,000 households in Northern Ireland and would have seen incomes reduced by up to £1600 per annum. At the time of the Summer Budget, the tax credit changes were justified on the basis that other policy announcements would compensate for the loss. Chief among these was the introduction of the National Living Wage. Clearly this proposition has been abandoned and the 2015 NERI Winter Quarterly Economic Observer will outline why the National Living Wage could never have compensate for the loss of tax credits.See here

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Permanent link | Categories: Government SpendingJobsLiving wageMacroeconomics

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