How useful is Structural VAR Analysis for Irish economics?

The purpose of this paper is to provide an introduction to the methodology known as Structural Vector Autoregression (SVAR) analysis and to examine its applicability in the context of Irish macroeconomics. The SVAR approach has been developed over the last decade to interpret business cycle fluctuations and to help identify the effects of different economic policies. It is an extension on the traditional atheoretic VAR approach in that it combines economic theory with time-series analysis to determine the dynamic response of economic variables to various disturbances. The main advantage with SVAR analysis is that the necessary restrictions on the estimated reduced form model, required for identification of the underlying structural model, can be provided by economic theory. These restrictions can be either contemporaneous or long-run in nature depending on whether the underlying disturbances are considered to be temporary or permanent in nature. Once the identification is achieved it is possible to recover the structural shocks. These shocks can then be used to generate impulse response and variance decomposition functions to assess the dynamic impacts on different economic variables. In addition these functions can be used to test whether such shocks affect the economic variables as economic theory would predict so providing a check on the theory. SVAR analysis has been used internationally to examine a variety of research topics, such as asymmetric shocks from monetary union and impacts of exchange rate movements. A number of research topics in the Irish context that could benefit from SVAR analysis are identified. These topics relate mainly to areas of inflation, exchange rate and monetary policy. The SVAR is an important and useful methodology that is worthy of more attention by the Irish economics community than it currently receives.

Differences in the Transmission of Monetary Policy in the Euro-Area: An Empirical Approach

This paper examines the impact of interest rate changes on real economic activity for a range of European Union (EU) countries including Ireland. The objective is to compare how monetary policy changes are transmitted to output in these economies. The analysis is based on evidence prior to the establishment of the common monetary policy within Economic and Monetary Union (EMU). A number of international studies over the last five years, in particular by the International Monetary Fund (IMF) and the Bank of International Settlements (BIS), have analysed how the effects of monetary policy can vary between countries. These studies have analysed most EU countries but Ireland has generally been omitted. This is due in part to the lack of the necessary quarterly national accounts’ data for output but also to the small weighting of Irish output in the euro area. This paper re-addresses the omission of Ireland by using a constructed quarterly GDP data series from 1972 to 1998. The paper, in line with previous international studies, applies a common methodology based on time series relationships and economic theory that incorporates three variables - prices, output and interest rates. This common methodology is applied to thirteen EU countries. In order to compare the responses similar data series, sample periods and an identical econometric framework are used for all countries. The transmission mechanism is the process through which monetary policy decisions are transmitted into changes in output. Economic theory tends to draw a distinction between the short and medium term when distinguishing the effects of monetary policy on the real economy. Over the medium term inflation is primarily a monetary phenomenon and in terms of the real effects on output, money is considered to be neutral. In the short term, however, monetary policy is considered to have real effects. There are two important dimensions to the conduct of monetary policy to be clearly distinguished. The first is the adjustment of monetary policy instruments in reaction to changes in objective variables such as output and inflation. The second is the impact of monetary authorities’ actions on the real economy. The paper concentrates on the latter. The monetary transmission mechanism consists of several inter-linked channels, such as the interest rate or money channel, the credit channel, the exchange rate channel and the asset price channel, which can differ substantially across countries. The focus of this paper is on the aggregate effect of these different transmission channels rather than on the relative importance of each in the different EU countries. The motivation for this focus arises from the need for the real effects of monetary policy to be relatively uniform across the different EU countries in order to facilitate the smooth conduct of monetary policy in the euro-area. It is also motivated by the lack of consensus on the effects of monetary policy changes through different channels in different countries or even within a given country. The lack of consensus stems from the difficulty in disentangling time series on interest rates into parts that are due to deliberate monetary policy measures and those that are due to endogenous responses of financial markets to unobserved economic disturbances. As a result, different empirical methodologies give rise to different estimates of the role and effect of monetary policy. The results from the common specification used by the international agencies would suggest that a monetary shock resulting in higher interest rates would seem to have an implausibly large and persistent impact on output in the Irish case in comparison to other EU countries. This may point to the need for a unique econometric specification for each economy in order to capture the differences in the monetary transmission mechanism more accurately rather than something unique about the Irish economy. The consequence of this recommendation would diminish the comparability of the results, but to proceed otherwise would be ill advised. Using a modified framework shows that the effects on output from interest rate changes in the smaller, peripheral countries in the EU, such as Ireland, Portugal, Finland and Denmark are deeper than those in the larger countries. While the magnitude of effects may be similar in these groups, the duration over which they occur can differ markedly. Therefore no consistent, common grouping emerges in terms of impact and duration. There is no evidence on the basis of this paper that there is a core group of countries, with the exclusion of Ireland, forming an obvious optimum currency area with the EU.

Fiscal Sustainability When Time is on Your Side

With a favourable demographic profile, a budget balance currently in surplus and gross government debt under 60 per cent of GDP, Ireland would appear to be an economy with time on its side before any concerns about fiscal sustainability arise. In this paper, it is argued that favourable baseline prospects, nevertheless, provide no less a challenge for public finance management than dealing with poor baseline prospects. Two long-term policy options - reducing the debt and prefunding future pension liabilities - with a direct impact on the public finances are discussed. Both raise important issues for government and have implications for the financial and monetary system that need careful consideration. It is pointed out that member states face disincentives under EU fiscal rules to initiating public pensions prefunding schemes. The dynamics of fiscal sustainability in a fast-growing economy such as Ireland are also considered. It is argued that the EU fiscal rules may limit the attainment of the optimal growth path of an economy, particularly in economies where significant government investment may be warranted. With a wide range of growth rates and stage of development experiences in prospect across member states in future years, it is important that the fiscal rules be assessed as to whether they cater successfully for the diversity of investment requirements and public finance prospects in the EU.

Economic Adjustment Within EMU - Ireland’s Experience

This paper examines the contribution of Balassa-Samuelson (B-S) type effects to inflationary pressures in Ireland. Irish productivity measures are exaggerated by foreign multinationals engaged in high value-added activities. These measures suggest that high productivity in the traded sectors explain most of the inflation differential. Using adjusted measures to account for the multinational effect, shorter-term demand side factors become more significant in explaining the inflation differential. Domestic fiscal and incomes policies are therefore an important source of adjustment for the Irish economy within a monetary union.

Measuring Structural Budget Balances in a Fast Growing Economy: The Case of Ireland

The most popular method of measuring structural budget balances is the “gaps plus elasticities” approach. Abtract: In this paper, it is argued that the idiosyncratic features of an economy need to be accounted for properly when seeking to achieve good estimates of structural budget balances using this method. The first step in this approach involves measuring the economy’s potential output in order to identify an output gap that indicates the economy’s cyclical position. There are two main approaches to measuring potential output - a production function approach and a trend smoothing approach. The paper highlights how estimates of potential output growth can vary quite considerably between these two approaches in an economy such as Ireland due to the manner in which the high mobility of productive factors can impact on the production function approach and in how very high recent growth rates impact on the trend smoothing approach. The second step of the gap plus elasticities approach requires measuring the sensitivity of revenue and expenditure items to the output gap in the form of an elasticity. In the standard estimation procedure, these elasticities are generally assumed to remain constant over the cycle. Evidence from Ireland, however, suggests that an assumption of constant elasticity values is unlikely to be plausible in practice. On the contrary, cyclically-sensitive fiscal policy will introduce time-variance into elasticity measures. There may be a need, therefore, to assess and quantify the significance and consequences of time variance in elasticity measures and its implications for structural budget balance estimation.

Inflation Targeting: A Review of the Issues

The European Monetary Institute have narrowed down the choice of candidate strategies for a single monetary policy within European Monetary Union to inflation targets or monetary aggregate targets. In practice it is unlikely to be a simple choice between these targets, since all monetary authorities that currently pursue either of these strategies also monitor a wide set of economic and financial variables to inform monetary policy. The choice of target will indicate more about the style of monetary policymaking. This paper focuses on inflation targets which have come to prominence internationally over the last decade. It examines both the theoretical and operational issues arising from the use of inflation targets as part of monetary policy. The theoretical aspects of inflation targeting are developed in a model which uses inflation forecasts explicitly as an intermediate target. These inflation targets provide a guide to policymakers by increasing the ability to establish credibility and commitment to overcome the problem of inflation bias inherent with discretionary monetary policy. The operational aspects of inflation targets stress the role of (i) deciding on the ultimate objective, either price stability solely or in addition to an output goal, (ii) the independence of the monetary authority from political interference, (iii) setting the inflation target value, either for inflation or the price level, (iv) choosing the appropriate time horizon, (v) the choice of instruments to achieve the target and so on. The experiences of those countries that have adopted inflation targets is drawn upon. While this experience has tended to be quite positive, the timespan since their adoption is too short for a conclusive assessment. The decision on whether inflation targeting will eclipse monetary aggregates as the dominant monetary policy strategy will depend on the accuracy of inflation forecasting compared with the predictability of money demand.

The Formulation of Monetary Policy in EMU

A key decision facing the newly formed European Central Bank will be the specification of a monetary policy strategy for the euro area. This article considers how monetary policy may be conducted within EMU, focusing on the main strategies under consideration. The agreed instruments and procedures that will be at the disposal of the ESCB are examined, where the various stages of monetary policy formulation through to the final target of price stability are outlined.

Improving Sample Collection and Time Series Analyses of Environmental Data in He‘eia Fishpond, O‘ahu, Hawai‘i, from 2007-2011

OCN 499 - Undergraduate Thesi

LONG-TERM MULTI-DIMENSIONAL INTERACTIVE TIME-LAPSE PHOTOGRAPHY USING MICROSOFT KINECT

In this thesis, a method is presented for the capture and interactive presentation of long-term multi-dimensional time-lapse photography. Time-lapse capture is commonly used for the observation based study of relatively long term phenomena such as plant growth and weather patterns. In terms of filmic devices, the visual time compression effect is complementary to slow motion and is nearly as prevalent. In this project, commonly available camera and computer equipment is used to capture images autonomously with minimal system supervision. A set of images is established, using long term, short interval continuous capture at a fixed position. Results are presented demonstrating dynamic movement within this set using the Microsoft Kinect sensor for Xbox 360 to evaluate participant gestures in real-time. Viewers\u27 tracked movements and positions motivate specific frame selection and playback order, allowing independent navigation through the time-lapse, independently by time of day, time of season, and in any order participants can obtain with their own movement and performance