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Monetary regimes, the term structure and business cycles in Ireland, 1972-2018

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  • Stuart, Rebecca

Abstract

The ability of the term structure (specifically the term spread, or the difference between the long and short ends of the yield curve) to predict economic activity is empirically well-established for the US, but less so for small open economies. The literature emphasizes the role of monetary policy for this predictive ability. Between 1972-2018, Ireland experienced three monetary regimes: first, the Irish Pound was fixed to Sterling (1972-1979); second the Pound floated in a band when Ireland was a member of the EMS (1979-1998); and third, as a member of the euro area (1999-2018). Using dynamic probit models and monthly data, I show that the term spread only had predictive power during the second regime, the only one in which the Central Bank of Ireland had any discretion to set interest rates based on domestic conditions.

Suggested Citation

  • Stuart, Rebecca, 2020. "Monetary regimes, the term structure and business cycles in Ireland, 1972-2018," QUCEH Working Paper Series 2020-03, Queen's University Belfast, Queen's University Centre for Economic History.
    • Handle: RePEc:zbw:qucehw:202003
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    More about this item

    Keywords

    Ireland; term structure; recessions; monetary regimes;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-

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