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An Analysis of the Transmission Mechanism of Monetary Policy in Ireland

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  • Bredin, Don

    (Central Bank and Financial Services Authority of Ireland)

  • O’Reilly, Gerard

    (Central Bank and Financial Services Authority of Ireland)

Abstract

This paper examines the impact of monetary policy shocks on a number of key economic variables, including output, prices and the exchange rate. The paper draws on recent techniques used in the structural vector autoregression literature. Our results suggest that an exogenous temporary increase in the short-term interest rate leads to a decline in output and prices with the latter responding more sluggishly. In addition, a higher interest rate leads to an immediate appreciation of the domestic exchange rate and a subsequent depreciation of the currency. Hence, there is an absence of an exchange rate or forward bias puzzle, which are prevalent in other studies. Overall the response of macroeconomic variables to a change in the interest rate are very small in magnitude.

Suggested Citation

  • Bredin, Don & O’Reilly, Gerard, 2001. "An Analysis of the Transmission Mechanism of Monetary Policy in Ireland," Research Technical Papers 1/RT/01, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:1/rt/01
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    2. Khaysy Srithilat & Thipphavanh Samatmanivong & Vaiyoth Lienpaserth & Phiengsanith Chanthavixay & Visanu Boundavong & Vonsy Douangty, 2022. "The Effect of Monetary Policy on Economic Growth in Lao PDR," International Journal of Economics and Financial Issues, Econjournals, vol. 12(1), pages 67-74.
    3. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
    4. Tomas Havranek & Marek Rusnak, 2013. "Transmission Lags of Monetary Policy: A Meta-Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 9(4), pages 39-76, December.
    5. Ching-Chun Wei, 2008. "The analysis of interest rate mean and volatility spillover to the industrial production index and stock markets: The case of China," Economics Bulletin, AccessEcon, vol. 3(65), pages 1-14.
    6. Chance Ngamanya Mwabutwa & Nicola Viegi & Manoel Bittencourt, 2016. "Evolution Of Monetary Policy Transmission Mechanism In Malawi: A Tvp-Var Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(1), pages 33-55, March.
    7. repec:ebl:ecbull:v:3:y:2008:i:65:p:1-14 is not listed on IDEAS
    8. Dermot Hodson, 2003. "The Exchange Rate as an Adjustment Mechanism - A Structural VAR Approach to the Case of Ireland," The Economic and Social Review, Economic and Social Studies, vol. 34(2), pages 151-172.
    9. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 92, European Central Bank.
    10. Jelena Zubkova & Egils Kauzens & Ivars Tillers & Martins Prusis, 2002. "Financial Market in Latvia," Working Papers 2002/02, Latvijas Banka.

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