Posts in the "Macroeconomics" category

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

NERI Seminar: Fiscal Priorities for Long-Run Growth

Posted on November 20, 2015 by Tom McDonnell

Neri poster - Nevin Economic Research Institute
Nevin Economic Research Institute

The latest NERI seminar  looked at the Irish economy’s recent performance and considered its medium-and-long-term prospects for growth. Over the course of the presentation a range of policy reforms to increase the economy’s long-run potential output were identified and discussed. Dr McDonnell set out the case for  increased investment in education and skills, particularly early years learning; to increase investment in the production, diffusion and use of new ideas. He showed how prudent investment in right types infrastructure is associated with long-run increases in productive capacity and argued that were capital markets are not well-functioning there is a strong case for a state investment bank to provide patient long-term finance to support innovative effort and technology diffusion.

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Permanent link | Categories: Government SpendingInvestmentMacroeconomicsTaxation

NERI Post Budget Seminar

Posted on October 22, 2015 by Daragh McCarthy

Post Budget Seminar, October 2015 - NERI Post Budget Seminar, October 2015
NERI Post Budget Seminar, October 2015

The NERI seminar series resumed yesterday with an analysis of Budget 2016—presentations from each of the three speakers are available below. The speakers outlined the budgetary choices facing Irish society with a special focus on issues related to childcare and housing. Thanks to Michael Taft ( UNITE ), John-Mark Cafferty ( Society of St. Vincent de Paul ) and Dáithi Downey ( Dublin City Council ) for their contribution. The next seminar in the series will take place on 18 November and will focus on ways to boost long-run growth in the economy— further details are available here .  


Michael Taft & ‘Clear Stark Choices—Budget 2016’ NERI Post-Budget Seminar , 21 October 2015, Dublin

John-Mark Cafferty & ‘Back to the Future’ NERI Post-Budget Seminar , 21 October 2015, Dublin

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Permanent link | Categories: Government SpendingInequalityInvestmentMacroeconomicsTaxation

Government Debt - We're not out of the woods yet

Posted on October 19, 2015 by Tom McDonnell

Out of the woods - We're not out of the woods
We're not out of the woods

Changes in government debt over time reflect the impact of government deficits. The sustainability of the national debt depends on the scale of the debt in relation to the size of the economy.

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Permanent link | Categories: Macroeconomics

Budget 2016, Taxes and Growth

Posted on October 08, 2015 by Tom McDonnell

QEO Autumn 2015 - Quarterly Economic Observer, Autumn 2015
Quarterly Economic Observer, Autumn 2015

Budget 2016 is close at hand and inevitably, and unfortunately, the debate has been characterised by loud and persistent campaigning by the anti-tax lobby. It seems every day brings new calls for tax breaks for one interest group or another. Yet there is limited fiscal space and we cannot afford to fritter away our precious resources in this way – we discuss the available fiscal space in depth in Section 4 of the Summer edition of the NERI's QEO. The received wisdom in the public sphere is that tax cuts raise growth. Yet each and every tax cut or tax break has an opportunity cost and theory and evidence suggests the relationship between tax cuts/breaks and economic growth is actually quite complicated.

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Permanent link | Categories: InvestmentMacroeconomicsTaxation

The impact of precarious work on wages, productivity and economic growth

Posted on August 06, 2015 by Daragh McCarthy

Temp Wanted - The economic impact of precarious work blog
The economic impact of precarious work blog

Temporary, short-term forms of employment in the early stages of an economic recovery are a well-established feature of the labour market; however, recent research by the OECD  has raised the concern that this practice has become a more deeply ingrained, lasting characteristic in the world of work. The issue of precarious jobs and the impact this form of employment has on households and the wider economy is gathering an increasing amount of attention from policymakers, academics, civil society groups and media across Europe*.

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Permanent link | Categories: InequalityJobsMacroeconomicsWages

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