Resolving Residential Mortgage Distress: Time to Modify?


December 18th, 2014

New IMF WP by Jochen Andritzky here.

Summary: In housing crises, high mortgage debt can feed a vicious circle of falling housing prices and declining consumption and incomes, leading to higher mortgage defaults and deeper recessions. In such situations, resolution policies may need to be adapted to help contain negative feedback loops while minimizing overall loan losses and moral hazard. Drawing on recent experiences from Iceland, Ireland, Spain, and the United States, this paper discusses how economic trade-offs affecting mortgage resolution differ in crises. Depending on country circumstances, the economic benefits of temporary forbearance and loan modifications for struggling households could outweigh their costs.

World Bank: World Development Report 2015 explores “Mind, Society, and Behavior”


December 12th, 2014


Managing House Price Booms: The Role of Macroprudential Policies


December 11th, 2014

IMF speech by Ratna Sahay here.

Economic and Social Review Winter 2014 Issue


December 11th, 2014

Free online:


Maternal Country of Birth Differences in Breastfeeding at Hospital Discharge in Ireland PDF
Aoife Brick, Anne Nolan 455-484
Middle Class Squeeze? Social Class and Perceived Financial Hardship in Ireland, 2002-2012 PDF
Peter Mühlau 485–509
Testing the Permanent Income Hypothesis for Irish Households, 1994 to 2005 PDF
Petra Gerlach-Kristen 511–535

Policy Section Articles

Averting Crisis? Commentary from the International Institutions on the Irish Property Sector in the Years Before the Crash PDF
Ciarán Michael Casey 537–557
How Have Contracts for Difference Affected Irish Equity Market Volatility? PDF
Shaen Corbet, Cian Twomey 559–577
Telework Isn’t Working: A Policy Review PDF
Michael Hynes 579–602


CSO Data Releases


December 11th, 2014

For the first three quarters of 2014 GDP is running 4.9 per cent ahead of the equivalent period in 2013. GNP is up 4.7 per cent on the same basis.  Quarter on quarter growth has slowed through the year though much of this is likely the result of distorting effects from the MNC sector.

The “contract manufacturing” effect that influenced the quarterly figures at the start of the year seems to have continued into Q3.  This seems to be supported by the Industrial Production data which includes this “contract manufacturing” effect and is highly volatile at the moment.  After rising by over 20 per cent in the first half of the year the volume of industrial production in manufacturing industries fell by 5 per cent in Q3 so remains at the elevated levels.  The figures show that the effect is arising in the pharmaceutical sector.

The Q3 balance of goods trade in the national accounts was around €3 billion higher than the balance shown by the Trade Statistics figures.  The difference was around €2.5 billion in Q2.

In the first nine months of 2013 the national accounting adjustments for goods trade resulted in a difference of just –€76 million between the trades balances recorded in the national accounts and trade statistics.  For the first nine months of 2014 the balance of goods in the national accounts is €7.9 billion greater than that shown in the trade statistics.

The current account of the balance of payments showed a massive surplus equivalent to 8.4 per cent of GDP in Q3.  This has been driven by an improvement in the merchandise balance (with no corresponding outflow on the services side) which is likely the result of the “contract manufacturing” effect discussed above.

It is possible (i.e. this is a guess) that the “contract manufacturing” effect is arising in an Irish-domiciled company.  If it was the Irish-resident branch of an MNC the profits would be recorded as an outflow in the BoP (and also for GNP) in the same quarter they are earned.  If it is an Irish-domiciled (or headquartered) company the profits would not be recorded as an outflow until a cash dividend is paid (assuming those dividends are paid to non-resident shareholders).  It is not appropriate to say that GNP excludes multinational sector profits.

[As an aside one might consider what impact, if any, these activities are having on Corporation Tax revenues.]


In November, consumer prices fell 0.3 per cent for the second month in a row (there was also a fall of 0.2 per cent in September).  Annual inflation is just 0.1 per cent.  Excluding energy products (-2 per cent) and mortgage interest (-12 per cent) inflation in the remaining 85 per cent of the index is around +1 per cent.

All charts from the CSO.

Do First Time Buyers Default Less? Implications for Macro-prudential Policy


December 10th, 2014

New Central Bank Economic Letter by Robert Kelly, Terry O’Malley and Conor O’Toole here.

PIIE Briefing: Rebuilding Europe’s Common Future: Combining Growth and Reform in the Euro Area


December 9th, 2014



Adam S. Posen and Ángel Ubide

1 Stimulating Demand to Foster Structural Reform in the Euro Area
Ajai Chopra

2 The European Central Bank Must Act Aggressively to Restore Price Stability in the Euro Area
Ángel Ubide
Data disclosure: The data underlying this analysis are available here [xlsx].

3 Role of Fiscal Policy to Spur Growth in Europe
Paolo Mauro

4 An Agenda for Reform of the Euro Area Labor Markets
Jacob Funk Kirkegaard
Data disclosure: The data underlying this analysis are available here [xlsx].

5 Overhaul of EU Financial System Needed to Foster Growth
Nicolas Véron

Irish Economy Conference Feb 25: Save the Date


December 9th, 2014
 On February 25th the fourth annual Irish economy conference, organised by the ESRI, UCD and University of Limerick, will take place. The venue is the Institute of Bankers. Details of the previous three events are below. A full programme and details of how to register will be provided shortly.
If you’d like to suggest sessions or speakers, please do use the comment box below.

The Distribution of Income in Ireland


December 6th, 2014

The Department of Finance answered an Oireachtas question about the distribution of tax units (ie individuals or couples filing jointly) during the week with the following information

All income earners for Income Tax Year 2015 (provisional)

Range of Gross Income – € Number of Income Earners
0 to 9,000 368,585
9,001 to 12,000 107,297
12,001 to 15,000 116,836
15,001 to 20,000 213,112
20,001 to 25,000 216,626
25,001 to 30,000 201,085
30,001 to 40,000 324,506
40,001 to 50,000 229,709
50,001 to 60,000 157,805
60,001 to 70,000 107,045
70,001 to 80,000 77,378
80,001 to 100,000 91,301
100,001 to 120,000 47,956
120,001 to 150,000 34,809
150,001 to 200,000 22,512
Over 200,001 24,642
Total 2,341,203
The figures are estimates from the Revenue tax-forecasting model using actual data for the year 2012 adjusted as necessary for income, self-employment and employment trends in the interim. These are, therefore, provisional and may be revised. It should also be noted that a married couple or civil partnership that has elected or has been deemed to have elected for joint assessment is counted as one tax unit.

Composition Effects and Loan-to-Value Limits


December 5th, 2014

The Irish Central Bank is scheduled to introduce new macro-prudential risk controls on Irish mortgage lending, with the new regulations taking effect on January 1st or soon thereafter. One of the regulations will limit most new mortgages to an initial loan-to-value ratio of 80% or less. There has been considerable discussion of the effect of loan-to-value limits on potential property purchasers, but the analysis has been very poorly framed.

The budgeting scenario has been described as follows:

“Consider a couple who wish to purchase a €300,000 property. With a LTV limit of 80% this will require that they save €60,000 for the down payment whereas if they were allowed to borrow 85% they would only need savings of €45,000.”

This oft-repeated budgeting scenario misrepresents the nature of market-wide LTV limits imposed by the Central Bank. This budgeting scenario gives the impression that the policy decision is about imposing/not imposing the LTV constraint on only one particular buyer rather than market-wide. It misses the large compositional effects since leveraged property buyers compete with one another for properties. The degree of leverage allowed in the banking system feeds into property prices, and this affects the opportunity set of purchasers. Read the rest of this entry »

Educational Reform and all that…


December 3rd, 2014

Educational reform and Junior Cert reform in particular has been getting a bit of coverage lately.  One observation which struck me was by Tom Collins, formerly Professor of Education at NUI Maynooth.  He mentioned anecdotal evidence claiming that primary school teachers could predict eventual secondary school educational outcomes from as early as six years of age.  Some recent work I did is consistent with this observation ( .  Using Growing Up in Ireland data, I  looked at the scores of nine year olds in the Drumcondra maths and reading tests.  Children were partitioned into four groups on the basis of their mothers’ education.  Rather than looking at gaps in average outcomes for each group, I looked at gaps for selected percentiles.  This is in the spirit of John Romer’s analysis of inequality of opportunity, whereby between-group gaps calculated at the same percentile are regarded as having to some degree controlled for “effort” and the gaps can be regarded as reflecting ex post inequality of opportunity.  At the limit the gaps are about one standard deviation and are pretty constant across percentiles.  I also perform quantile decompositions for pairwise gaps and find that in general about one third to  one half of the gap is accounted for by observable characteristics (including school, class-size and teacher characteristics) with most of this “explained” gap arising from income and the number of books in the house.  Unobserved factors and “returns” to observed factors thus account for more than half the gaps.

The paper provides evidence that gaps in educational outcomes, on the basis of parental education, kick in at remarkably early ages.  It is also consistent with the idea that returns to education apply across as well as within generations.  There is a good recent review of this area by my colleague Paul Devereux here

Implementing Limits on LTVs and DTIs: A Cross Country View


December 2nd, 2014

The Riksbank and IMF recently organised a conference on macroprudential policy – programme here.

A presentation on “Implementing Limits on LTVs and DTIs: A Cross Country View” by Luis Jacome and Srobona Mitra of the IMF is here.

Bank funding costs: what are they, what determines them and why do they matter?


November 30th, 2014

This new Bank of England primer is helpful in the context of the current concerns about the funding costs facing Irish banks – here.

EC Assessments of Budgets


November 29th, 2014

The European Commission have published their assessments of the draft budgets from the 16 eurozone countries covered by the assessment (programme countries Greece and Cyprus are not involved).  Of the 16, five were judged as “compliant” by the Commission (shown in green below).

A huge amount of material is available here.  For Ireland there is the:

The Commission have also published the Alert Mechanism Report as part of the Macroeconomic Imbalance Procedure. There is also the Statistical Annex from which Ireland’s scorecard is extracted here and shows four “imbalances” with house prices likely to add a fifth.  The “auxiliary indicators” may also be worth a glance.

This is still early days for the European Semester but at the moment it feels a little like a blizzard covering everything.  It seems to be designed on the maximin principle – by including everything they can’t be accused of missing anything.  The problem is that the important points may get lost in the noise.

Fiscal Assessment Report, Nov. 2014


November 25th, 2014

The latest IFAC report is here.

Mental Health and Unemployment


November 23rd, 2014

I posted recently on the implications of the emerging literature on the economics of mental health in the Irish context. I am currently working on some projects looking at the role of mental health in life-long economic outcomes. One of the first papers from this project is below. It shows a substantial predictive effect childhood distress throughout childhood and adolescence on later trajectories of unemployment and also evidence that this becomes particularly marked during recessions. Apologies for self-promotion but I would like to flag an event we are running in Stirling on this topic on December 5th for which there are still places if people wish to attend. Also people interested in working on this area as a researcher or PhD student please feel free to get in touch.

 Childhood psychological distress and youth unemployment: Evidence from two British cohort studies

Mark Egan, Michael Daly, and Liam Delaney

AbstractThe effect of childhood mental health on later unemployment has not yet been established. In this article we assess whether childhood psychological distress places young people at high risk of subsequent unemployment and whether the presence of economic recession strengthens this relationship. This study was based on 19,217 individuals drawn from two nationally-representative British prospective cohort studies; the Longitudinal Study of Young People in England (LSYPE) and the National Child Development Study (NCDS). Both cohorts contain rich contemporaneous information detailing the participants’ early life socioeconomic background, household characteristics, and physical health. In adjusted analyses in the LSYPE sample (N = 10,232) those who reported high levels of distress at age 14 were 2 percentage points more likely than those with low distress to be unemployed between ages 16 and 21. In adjusted analyses of the NCDS sample (N = 8985) children rated as having high distress levels by their teachers at age 7 and 11 were 3 percentage points more likely than those with low distress to be unemployed between ages 16 and 23. Our examination of the 1980 UK recession in the NCDS cohort found the difference in average unemployment level between those with high versus low distress rose from 2.6 pct points in the pre-recession period to 3.9 points in the post-recession period. These findings point to a previously neglected contribution of childhood mental health to youth unemployment, which may be particularly pronounced during times of economic recession. Our findings also suggest a further economic benefit to enhancing the provision of mental health services early in life.

In the Irish context, the Growing Up in Ireland  study has been conducting research on children and adolescent welfare and health and will (subject to following the group up) be able to examine these findings in the Irish context. As said in the previous post, it is a good time to have a debate about the extent to which enough resources are invested in the development of children in Ireland early in life and particularly to examine outcomes such as resilience and mental health that have not traditionally crossed into economic analysis. The extent to which public investments in mental health remediation services throughout childhood and adolescence might produce a long-lasting flow of psychological and financial benefits is a question that has not been given a great deal of evidence-based debate in the Irish context (with notable exceptions including this excellent project by colleagues at UCD).  The emergence of large scale aging cohort study data in the form of the TCD-led TILDA project is another avenue that is starting to show the linkages between mental/physical well-being and economic outcomes throughout life.

Post Programme Surveillance


November 21st, 2014

Research Assistant


November 21st, 2014

UCC have a fixed-term position for a project on Cluster Mapping. Details here.

2015 Annual Irish Economic Association Conference


November 19th, 2014

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. Edgar Morgenroth (Economic and Social Research Institute) is the local organizer.
The ESR guest lecture will be given by Professor Christopher Udry (Yale University) and the Edgeworth Lecture by Professor Giancarlo Corsetti (University of Cambridge).
The Association invites submissions of papers to be considered for the conference programme. Papers may be on any area in Economics, Finance and Econometrics.
The deadline for submitted articles is the 8th of February 2015 and submissions can be made through this site.

Central Bank event: Labour Markets over the Business Cycle


November 18th, 2014

The Central Bank is hosting a one-day conference on “Labour Markets over the Business Cycle” on 11 December in Dame Street (programme below). There is a limited number of places still available. If you wish to attend, please email by 9 December. Please note that places will be allocated strictly on a first-come-first-served basis.

Labour Market Adjustment over the Business Cycle

A one-day conference at the Central Bank of Ireland

11 December 2014
Liffey room, Dame Street, Dublin 2

email to confirm attendance by 9 December



11 December  
08:45 Registration and coffee
09:00 Opening remarks – “Prospects and Challenges for the Irish Labour Market 2015 – 2020”. John Flynn (Head of Irish Economic Analysis Division, Central Bank of Ireland).
Session 1 


Cycles in employment, unemployment and wages
  Labour market transitions in Ireland – Thomas Conefrey (Irish Fiscal Advisory Council)
  Wage Cyclicality – Mario Izquierdo (Banco de Espana)


11:00 Coffee & tea break
Session 2
Labour market attachment
  Are the marginally attached unemployed or inactive? – Martina Lawless (CBI/ESRI)
  Sources of wage losses of displaced workers – Pedro Portugal (Banco de Portugal)
13:00 – 14:00 Lunch
Session 3
14:00 – 15:45
Wage flexibility
  Wage flexibility in Ireland – Olive Sweetman (Maynooth University)
  Wage Setting - Flexibility and Rigidity in the UK since 1975 – Jennifer Smith (University of Warwick)


Session 4


Labour market adjustment during and after the crisis: the role of policies and institutions
  Pedro Martins (Queen Mary University of London)
  Questions & discussion


  Closing remarks

Conference Ends

A Renewed Effort to Close Global Tax Loopholes Faces an Uphill Battle


November 14th, 2014

NY Times article with interesting graphics here.

Networks and economic history


November 13th, 2014

Since Paul Krugman and others are talking about the role of networks in economic history, let me throw this classic paper by our own Morgan Kelly into the mix (thanks to David O’Donnell for the link to the ungated version).

Tax Systems


November 12th, 2014

The Fall 2014 issue of the Journal of Economic Perspectives is free to download here.

Especially topical are:


Zucman, Gabriel. 2014. “Taxing across Borders: Tracking Personal Wealth and Corporate Profits Journal of Economic Perspectives, 28(4): 121-48.


This article attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. US corporations book 20 percent of their profits in tax havens, a tenfold increase since the 1980; their effective tax rate has declined from 30 to 20 percent over the last 15 years, and about two-thirds of this decline can be attributed to increased international tax avoidance. Globally, 8 percent of the world’s personal financial wealth is held offshore, costing more than $200 billion to governments every year. Despite ambitious policy initiatives, profit shifting to tax havens and offshore wealth are rising. I discuss the recent proposals made to address these issues, and I argue that the main objective should be to create a world financial registry.

Kleven, Henrik Jacobsen. 2014. “How Can Scandinavians Tax So Much? Journal of Economic Perspectives, 28(4): 77-98.

American visitors to Scandinavian countries are often puzzled by what they observe: despite large income redistribution through distortionary taxes and transfers, these are very high-income countries. They rank among the highest in the world in terms of income per capita, as well as most other economic and social outcomes. The economic and social success of Scandinavia poses important questions for economics and for those arguing against large redistribution based on its supposedly detrimental effect on economic growth and welfare. How can Scandinavian countries raise large amounts of tax revenue for redistribution and social insurance while maintaining some of the strongest economic outcomes in the world? Combining micro and macro evidence, this paper identifies three policies that can help explain this apparent anomaly: the coverage of third-party information reporting (ensuring a low level of tax evasion), the broadness of tax bases (ensuring a low level of tax avoidance), and the strong subsidization of goods that are complementary to working (ensuring a high level of labor force participation). The paper also presents descriptive evidence on a variety of social and cultural indicators that may help in explaining the economic and social success of Scandinavia.

European integration and the Incompatibility of National Varieties of Capitalism


November 12th, 2014

New paper from Aidan Regan (UCD) here.

Why the Allies won WW1


November 11th, 2014

The latest column in the VoxEU series on the economics of World War I is by Steve Broadberry, and is available here.

More fishing expeditions into Ireland’s tax past?


November 10th, 2014

Yesterday’s Sunday Business Post led with a story that the European Commission has started some “information gathering exercises” into tax arrangements put in place with MNCs in the 1980s and early 1990s.  The only company named in the piece is Pepsi.

There is a notable link between Pepsi and Apple.  John Sculley was vice-president of Pepsi from  1970 to 1977 and president from 1977 to 1983.  He was CEO of Apple from 1983 to 1993.  Last week he was in Dublin and gave an interview to RTE’s Science and Technology Correspondent, Will Goodbody.  The interview is available on this page and the relevant segment begins at around 08:45.  The short transcript and the rest of the post are below the fold.

Read the rest of this entry »

Household Indebtedness – Rhetoric and Action


November 8th, 2014

Patrick Honohan’s speech to MABS event is here.

Letters of November 2010


November 6th, 2014

Jean Claude Trichet’s 19th November 2010 letter to “Tánaiste” Brian Lenihan is here.  Brian Lenihan’s reply.  It should be remembered that Gavin Sheridan has been to the fore in the efforts to get the Trichet letter published.

UPDATE: ECB page on this is here with lots of related information and material.

Structural Reforms and Fiscal Policy: Lessons from Germany


November 6th, 2014

Otmar Issing and Ludger Schuknecht explain in this WSJ oped that “Berlin’s pro-growth efforts in the early 2000s saved money rather than require extra spending” – here.

Invitation to talk: Financial Crises: Lessons Learned and Financial Reform by René M. Stulz


November 5th, 2014

The Financial Mathematics and Computation Research Cluster (FMC2) are pleased to invite you to attend the following topical talk by René Stulz, a member of our Scientific Advisory Board.

Financial Crises: Lessons Learned and Financial Reform
René M. Stulz, Chair of Banking and Monetary Economics, The Ohio State University

Date: Monday 17 November 2014
Venue: Institute of Banking, 1 North Wall Quay, Dublin1 (inside the Citi Building)
Time: 6:00pm – 7:00pm
Refreshments will be served from 5:30pm.

This event is free but for catering purposes please register using this link
or email

René M. Stulz Bio:

René M. Stulz is the Everett D. Reese Chair of Banking and Monetary Economics and the Director of the Dice Center for Research in Financial Economics at The Ohio State University. He has also taught at the Massachusetts Institute of Technology (MIT), the University of Chicago, and the University of Rochester.

René M. Stulz was the editor of the Journal of Finance, the leading academic publication in the field of finance, for twelve years. He is on the editorial board of more than ten academic and practitioner journals. He has published more than sixty papers in finance and economics journals. He is the author of a textbook titled Risk Management and Derivatives, a co-author of the Squam Lake Report: Fixing the Financial System, and has edited several books.

About FMC2:

The Financial Mathematics Computation Cluster (FMC2) is a collaboration between Industry, University College Dublin, Dublin City University, and NUI Maynooth. FMC2 is a Science Foundation Ireland funded Strategic Research Cluster (SRC). The cluster brings together complementary expertise in financial mathematics, financial economics and computer science to create a multi-disciplinary research programme in asset and risk management, areas that are of critical importance to the present and future development of the international financial services sector in Ireland. For further details see