The EU Expenditure Benchmark: Operational Issues for Ireland in 2016

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April 1st, 2015

A new analytical note from the Fiscal Council. Here.

IEA 2015 Conference

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March 27th, 2015

The 29th Annual Irish Economic Association Conference will be held at the Institute of Banking, IFSC, 1 North Wall Quay, Dublin 1 on Thursday May 7th and Friday May 8th, 2015. The ESR guest lecture will be given by Professor Christopher Udry (Yale University) and the Edgeworth Lecture by Professor Giancarlo Corsetti (University of Cambridge). This year we have a very strong and expanded programme.

Registration for the conference is through the exordo site. Early registration costs 100 euros and includes dinner on the 7th. There is a much lower price for student delegates at 35 euros.

Bookings for accommodation should be made directly. We have negotiated some discounted hotel rooms at the Maldron Hotel, Cardiff Lane, which is close to the conference venue (mention the “IEA2015″).

I’m looking forward to seeing you there.

International Investment Position & External Debt – Q4 2014

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March 25th, 2015

The CSO have published the Q4 2014 update for these data.  As pointed out 12 months ago there is a lot of noise in the figures.

Ireland’s gross external debt was estimated to be €1,721.6 billion at the end of 2014.  On the other side of the ledger there are €2,623.8 billion of external assets in debt instruments.  This means we have a net position of -€902.2bn, i.e. assets exceed liabilities.  Of course, these figures are close to meaningless in any real sense as they are polluted by financial services sector.

Under the heading “IFSC” the CSO records total foreign assets of €2,757.5 billion and total foreign liabilities of €2,790.4 billion.  The gross totals are immense but the net position is small by comparison.  Here are the net international investment positions by sector excluding the impact of the IFSC.

Looking at the NIIP by sector is not the end of the story.  We equally have to account for the MNC effect that will impact the figures for non-financial companies.  For example in debt instruments alone there is €168 billion of external debt and €242 billion of external assets in debt associated with direct investment (outside the IFSC).  This is further muddied by foreign direct investment into Ireland and investment abroad by Irish domiciled (and sometimes foreign-owned) companies.  Part of the impact of this can be seen in the second panel which shows the NIIP by type of investment.

Ireland gross external debt (excluding the IFSC) is around €470 billion.  By factoring for external assets in debt instruments the equivalent net external debt is (just) €55 billion.  However, if we exclude the impact of direct investment in both directions (mainly MNCs but not exclusively foreign-owned MNCs) the situation is:

The gross external debt figure is just over €300 billion and has fallen around €100 billion over the past three years.  As more of the external assets in debt instruments are associated with direct investment the net external debt figure here is €130 billion (higher than the €55 billion figure including direct investment).  This has fallen by around €75 billion over the past three years.

If we look at the overall net international investment position we see the following (the chart begins in Q1 2012 as that is when the new BPM6 series start):

Note the subcategories are not the same.  In the external debt chart we were able to remove assets and liabilities associated with direct investment.  For the NIIP only a division by sectors is available.  Thus we can show the NIIP excluding non-financial companies which in the main will reflect the activities of MNCs but not exclusively so.  Outside of the IFSC and NFCs Ireland has a net external liability of €80 billion which is an improvement of €60 billion on the position at the start of 2012.

When is macroprudential policy effective?

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March 24th, 2015

BIS paper here.

Abstract:

Previous studies have shown that limits on loan-to-value (LTV) and debt-to-income (DTI) ratios can stabilise the housing market, and that tightening these limits tends to be more effective than loosening them. This paper examines whether the relative effectiveness of tightening vs. loosening macroprudential measures depends on where in the housing cycle they are implemented. I find that tightening measures have greater effects when credit is expanding quickly and when house prices are high relative to income. Loosening measures seem to have smaller effects than tightening, but the difference is negligible in downturns. Loosening being found to have small effects is consistent with where it occurs in the cycle.

Irish Journalism during the Celtic Tiger period

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March 24th, 2015

The Media Show on RTE Radio featured a debate between Harry Browne and Richard Curran -  podcast here.

Mortgage Debt Restructuring

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March 24th, 2015

Eamon Quinn writes in The Irish News here.

2 Lectureships in Economics at UL

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March 20th, 2015

The Department of Economics at the University of Limerick is looking to hire 2 tenure-track Lecturers below the bar, one in Macroeconomics/Monetary economics. The closing date is 10 April, 2015. All details are here. 

Macroeconomic Data Revisions

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March 19th, 2015

New analysis by Eddie Casey and Diarmuid Smyth here.

Cyprus and Greece

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March 18th, 2015

NYT review of Cyprus here.

FT editorial on Grexit here ;  op-ed by Greek cabinet ministers here.

IBRC liquidation ‘Progress Report’

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March 13th, 2015

Here.

Missing Money

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March 12th, 2015

FT Alphaville carries some material on unrecorded outflows from crisis-hit countries here and here.

Today’s CSO release for Ireland shows little progress in recovering/identifying the cumulative €20 billion (approximately) in “net errors and omissions” (a proxy for unrecorded financial outflows) during 2010-2011.

 

CSO Updates

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March 12th, 2015

The CSO have published the Q4 2014 Quarterly National Accounts which provide us with the first  full-year estimates for 2014.

Real GDP growth in 2014 is estimated to have been 4.8 per cent. Real GNP expanded by 5.2 per cent.

Nominal GDP grew by 6.1 per cent and now stands at €185 billion.  Real GDP growth was 0.2 per cent in Q4 2014 compared to previous quarter.  The Balance of Payments shows a current account surplus equivalent to 6.2 per cent of GDP (€11.5 billion) for 2014.

As per usual there is likely a lot happening under the surface of the headline figures with factors like contract manufacturing and re-domiciling PLCs impacting previous figures.

Prices rose 0.6 per cent in February but annual inflation remained negative at –0.4 per cent.

ESRB: Regulatory Treatment of Sovereign Exposures

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March 12th, 2015

The  risks of financial institutions (banks, insurance firms) holding excessive amounts of sovereign debt are analysed in this new report, along with an array of policy options: here.

New Book on Irish Economic Development

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March 10th, 2015

UCC’s Eoin O’Leary has just published his monograph “Irish Economic Development: High-Performing EU State or Serial Under-achiever?” From the publisher’s site:

This book offers a discerning narrative on the spectacular rise and fall of the so-called Celtic Tiger economy. It depicts Ireland as a micro-state with a unique reliance on foreign-assisted businesses, driven in part by a favourable taxation regime. It shows that rent-seeking by trades unions and property developers contributed to the fall since 2002. Although the country’s highly centralized government’s pre-disposition to lobbying has yielded international successes, it has also resulted in recurring self-inflicted crises since 1970.

This volume shows how Ireland’s export-led growth is associated more with the attraction of foreign-assisted businesses than with the development of critical masses of internationally competitive indigenous businesses. Although the success of foreign-assisted businesses in the pharmaceutical, ICT and finance sectors has been influenced by tax advantages, many of these businesses have been involved in highly productive activity in Ireland over a number of decades. The problem of rent-seeking is shown to have undermined Irish competitiveness in the internationally traded and sheltered sectors. The Irish policy mind-set is shown to lean towards distribution rather than growth. While this has been advantageous for how ‘Ireland Inc.’ interacts with other governments and international businesses, it has also resulted in a failure to resist the destructive effects of capture by lobbies.

In conclusion, this book considers future opportunities offered by the EU’s smart-specialization policy and future threats from increased international tax competition. It argues that unless Irish citizens and policymakers change deep-seated attitudes and mind-sets towards business development, the country’s performance for the next number of decades will more likely resemble serial under-achievement than that of a high-performing EU state.

Details are here:  http://www.tandf.net/books/details/9780415645126/

Reforms in Greece

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March 10th, 2015

Letter from Francesco Caselli in today’s FT here. (His earlier paper on political economy of the Greek crisis is here.)

Op-Ed from Marcel Fratzscher here.

What is the problem that selling Aer Lingus is supposed to solve?

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March 4th, 2015

I am writing this in the Aer Lingus lounge in Heathrow’s new Terminal 2, somewhere I spend a lot of time. Like a lot of other Irish people, I am a loyal customer of the national carrier, for a very simple reason: it’s a fantastic airline. It serves lots and lots of destinations direct from Dublin — no more going through London to get anywhere, which was once very often the case. It’s cheap — thanks to competition with Ryanair, British Airways and others. It offers the things that frequent fliers want — lounge access and terrific service. It pays decent wages. It’s Irish.

What’s not to like?

When deciding whether or not to sell the State’s remaining stake in Aer Lingus, you have to make value judgements, whether you admit to doing so or not: there are no “scientific” grounds to prefer one outcome to another. It’s the customer experience that matters to me, and I don’t see why you would think that selling the State’s stake would improve that in the long run.

So, what’s in it for me consumers?

Here’s a radical thought: ballot Aer Lingus customers, and see what they think. Isn’t the customer supposed to be king?

Video, Audio and Slides from the Irish Economy Conference

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March 4th, 2015

Are here. Many thanks to everyone who attended, and particularly our guest speakers.

ECB Analysis of Virtual Currency Schemes

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March 3rd, 2015

New report here.

Upcoming Conference on Macroprudential Regulation

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March 2nd, 2015

Call for Papers: Macroprudential regulation: policy dynamics and limitations

A joint academic-practitioner conference with the theme Macroprudential regulation: policy dynamics and limitations will be held in Dublin, Ireland on Friday September 4th, 2015, organized by the Financial Mathematics and Computation Cluster (FMC2), the Department of Economics, Finance & Accounting at Maynooth University and the UCD School of Business at University College Dublin.

Macroprudential regulation is fairly new, and there are many unanswered questions. Can macroprudential constraints on credit be reliably attuned with the business cycle and/or credit cycle? Are fixed constraints on credit safer and more reliable than attempts at dynamic anti-cyclical ones? Should regulators take account of market or regulatory imperfections, such as in the construction sector, in setting constraints on credit growth? Is macroprudential control by an independent central bank consistent with the democratic accountability of government economic and social policies? Potential topics include:
* Business cycles, financial cycles, and the feasibility of dynamic macroprudential control
* The desirability and effectiveness of LTI and LTV limits on mortgage lending
* Democratic accountability and central bank independence
* Modelling house price movements and household debt and their interactions
* Controlling credit growth and credit flows in the Eurozone
* International case studies of macroprudential regulation.
* Assessment of macroprudential credit-restricting policies

Please send papers or detailed proposals by June 15th, 2015 at the latest to Irene.moore@ucd.ie; all papers must be submitted electronically in adobe pdf format. There will be both main conference sessions and poster sessions. We will consider proposed contributions to the poster session until 31st July. The academic coordinators for the conference are Gregory Connor and John Cotter, who can be contacted at Gregory.connor@nuim.ie or John.cotter@ucd.ie.

There are no submission fees or attendance fees for the conference. We are grateful to the Science Foundation of Ireland and the Irish Institute of Bankers for their generous support of this conference. The Financial Mathematics Computation Cluster (FMC2) is a collaboration between University College Dublin, Maynooth University, Dublin City University and industry partners, with support from the Science Foundation of Ireland.

Ultra posse nemo obligatur, anyone?

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February 23rd, 2015

Paul Mason has a blog post and interview here, worth reading and watching. I am going to stick my neck out and assert that Manolis Glezos does in fact speak with a certain moral authority. But it is the German deputy finance minister’s constant insistence on obeying the law that prompts this post, along with its title. For German government use of the principle in the economic domain, see here (p. 188).

Another one from Jordà, Schularick and Taylor

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February 23rd, 2015

The latest in an important series of papers by Jordà, Schularick and Taylor is described here.

Although they don’t spin it this way (which is not surprising, since they don’t provide evidence about the impact of fiscal policy on housing booms and busts), the work suggests to this reader potential arguments (on top of the more standard ones) regarding the benefits of automatic stabilisers and countercyclical fiscal policy.

The Szasz Doctrine

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February 21st, 2015

Ashoka Mody writes here.

US: 2015 Economic Report of the President

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February 20th, 2015

This report is the primary ‘academic’ publication of the US administration – tons of interesting material here.

Job Openings for Post-Doctoral Research Fellows

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February 18th, 2015

The ESRI has recently posted an advertisement for post-docs in Economics in a range of areas. Detailed information is available here.

We would be grateful if you could forward the link to any potentially suitable candidates you may know of.

Letter from Mario Draghi

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February 18th, 2015

ECB President Mario Draghi wrote to MEP Matt Carthy on ”several aspects of the Irish adjustment programme”. Available here.

Reminder: Irish Economy Conference, Feb 25th

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February 17th, 2015

A reminder that the Irish Economy Conference: Learning from Crisis will take place on Feb 25th. Programme details and how to signup are here.

Data Set on Irish Banks

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February 16th, 2015

I have posted the underlying data used in my recent SSISI paper here.

Irish virtue, Irish (or should that be FG?) interests

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February 16th, 2015

There has been some talk recently about how Greece should take its medicine the way Ireland has. So here is a chart, taken from the IMF’s WEO database, showing the two countries’ structural budget balances as a percentage of GDP:

 

Even if you start the clock in 2008, there is a sizeable difference. And if you start in 2010, when the programmes started, there is no comparison in terms of the “fiscal effort” made. (And yes, I know, it would be much better to look at ex ante measures of austerity, but this is what was to hand.) On top of that, the multiplier in Greece is presumably larger than in very small and very open Ireland. The EC estimates that it is almost twice as large in this paper, not that I take their Greek multiplier estimate particularly seriously. And finally, there is this chart which a friend sends me.

So, to summarise: the Greeks have done more “reform” than we have, have endured a lot more austerity, and live in a country where the costs of austerity are likely to be higher than here. Perhaps the Irish government might want to tone down its assertions of relative virtue, and display a bit of solidarity with Greece. Is a less deflationary and less creditor-friendly Eurozone  not in Ireland’s long term interests, assuming that we remain a member of the single currency?

Except of course that it won’t, for party political reasons. And you can see why. Expect to see more ad hominem attacks on dangerous ex-IMF radicals and other fellow travellers in the months ahead (despite the fact that the government is expecting the electorate’s gratitude for…implementing the programme that the self-same IMF and its fellow-Troika members designed! You couldn’t make it up.).

TASC: Cherishing All Equally

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February 16th, 2015

Report here.

New Cormac O’Grada Book on Famine

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February 14th, 2015

Eating People Is Wrong, and Other Essays on Famine, Its Past, and Its Future

Famines are becoming smaller and rarer, but optimism about the possibility of a famine-free future must be tempered by the threat of global warming. That is just one of the arguments that Cormac Ó Gráda, one of the world’s leading authorities on the history and economics of famine, develops in this wide-ranging book, which provides crucial new perspectives on key questions raised by famines around the globe between the seventeenth and twenty-first centuries.

The book begins with a taboo topic. Ó Gráda argues that cannibalism, while by no means a universal feature of famines and never responsible for more than a tiny proportion of famine deaths, has probably been more common during very severe famines than previously thought. The book goes on to offer new interpretations of two of the twentieth century’s most notorious and controversial famines, the Great Bengal Famine and the Chinese Great Leap Forward Famine. Ó Gráda questions the standard view of the Bengal Famine as a perfect example of market failure, arguing instead that the primary cause was the unwillingness of colonial rulers to divert food from their war effort. The book also addresses the role played by traders and speculators during famines more generally, invoking evidence from famines in France, Ireland, Finland, Malawi, Niger, and Somalia since the 1600s, and overturning Adam Smith’s claim that government attempts to solve food shortages always cause famines.

Thought-provoking and important, this is essential reading for historians, economists, demographers, and anyone else who is interested in the history and possible future of famine.

Cormac Ó Gráda is professor emeritus of economics at University College Dublin. His books include Famine: A Short History and Black ’47 and Beyond: The Great Irish Famine in History, Economy, and Memory (both Princeton).