September Live Register

I don’t have time to report any detailed analysis of today’s Live Register figures but it is worth noting that September was the first month since December 2007 in which the unemployment rate did not rise. The standardised unemployment rate remained at 12.6%. As an aside, I’d note that this is still two tenths higher than the rate previously reported for August because higher second quarter unemployment in the QNHS, upon which this measure is based, saw the previous figures revised upwards.

Combined with last week’s GDP release, which showed flat seasonally adjusted GDP in the second quarter—consistent with a 6.7 percent year over year decline if GDP stayed flat for the second half of the year—there are now good reasons to believe that the economy is bottoming out. Of course, there must be concerns that further fiscal contraction could undo this stabilisation but hopefully by the time this kicks in there will be a decent world recovery to help out.

Happy Birthday to the Guarantee!

I think we’d be remiss if the blog failed to mark the one-year anniversary of our Bank Guarantee Scheme or, as I like to call it, the initiative formerly known as “the cheapest bailout in the world so far.”

Useful points for discussion might include whether the guarantee was a brilliant move that saved the country from ruin (as our small but dedicated band of Lenihan fans will most likely view it), whether it should have included Anglo Irish Bank, whether it should have included subordinated bonds, and whether it should have applied to all existing liabilities or been limited to deposits plus new bond issues.

Academic Speculation

Patrick Honohan has now officially taken over as Governor of the Central Bank. The Sunday Business Post had this snippet yesterday:

* Much speculation about who will fill the chair of international financial economics and development at Trinity College, Dublin, shortly to be vacated by Professor Patrick Honohan when he takes up his appointment at the Central Bank.

Particularly, one wonders will the selection board be watching, the excellent forum for economic debate and general nerdy competition. Are any of the likely competitors for the prestigious Trinity gig – which is, according to those familiar with such arcana, a ‘‘proper professorship’’ posting their thoughts and learned analysis on the site? Should they steer clear and concentrate on more serious work? Should they promote their media profile? Have they been too strident in their criticisms of the government?

[at the end of this compendium article]

While I have not encountered this speculation myself,   it may be worthwhile to point out that Irish universities operate under an extensive recruitment embargo,  such that no immediate vacancy has been created by Patrick’s departure!

Some Unpleasant NAMA Arithmetic

Regardless of the rights or wrongs of NAMA, it is shocking how many commentators have accepted the notion that a 10 percent rise in property prices over the next decade will be sufficient for NAMA to break even.  The “logic” is this:  we are paying a little over €51 billion upfront for assets thought to be currently worth €47 billion, so a 10 percent rise in the value of the assets will give us our money back.  Let’s be as spectacularly optimistic as John Mulcahy, NAMA’s senior property valuer, who (alone?) believes that the property market is at the bottom of its cycle.  Would anyone consider it a good deal to lend someone €100 today and have them return €100 in 10 years time?  Obviously not.  Firstly, with any increase in the general price level, €100 will be worth a lot less to you in a decade.  And secondly, you would expect the money to be repaid with interest (especially if you had borrowed it commercially yourself!).  Property prices will have to rise by a multiple of 10 percent for NAMA to break even.  (Apologies for having to state something that must be so obvious to everyone on this website!)

The Economic, Legal and Social benefits of the Lisbon Treaty

Q & A UCD Tuesday 29th 1pm, Theatre Q, UCD Arts Block

The Economic, Legal and Social benefits of the Lisbon Treaty


Dr. Gavin Barrett, Expertise in EU Constitutional Law.

Prof. Patrick Paul Walsh, Expertise in International Development Studies.

Prof. Brian Nolan, Expertise in Public Policy.

Hosted by Generation YES and UCD Students’ Union

Bloomberg Article on NAMA

Thanks to commenter Blake for flagging this article from Bloomberg about the NAMA plan.

The reference in the article to the original US Trouble Asset Relief Plan (TARP) is a useful one in light of our current public debate and one that I’ve thought about blogging about a few times lately. It is indeed the case that US Treasury Secretary Hank Paulson wanted to use large amounts of US taxpayers money to purchase distressed assets from US banks, an idea that sounds a lot like NAMA. However, the US Treasury ended up deciding that a better approach was to use the funds to purchase equity stakes in banks for the taxpayer. There were various criticisms at the time that the terms of these equity purchases were too generous to exisiting shareholders but it seems now as though many of these deals will provide a decent return to the US government.

There are, of course, numerous difficulties in comparing bank rescue schemes across time and place but I think the TARP story is still instructive.

G20 and Reforming Banking Regulation

The communiqué for the latest G20 summit is available here. It contains lots of the usual waffle about co-operation on this that and the other, but I think the most important element of the discussions relates to the reform of banking regulation.

Continue reading “G20 and Reforming Banking Regulation”

Guinness and the knowledge economy

One of the points which smart economy boosters often miss, but which is obvious to economists, is that technology is internationally mobile. It follows that productivity growth in a small open economy like Ireland depends much more on the domestic adoption of foreign inventions than on domestic inventions. This in turn has implications for the sorts of arguments that can be made in favour of government R&D expenditure in Ireland.

Cormac provides a nice historical example here.

Managing Housing Bubbles in Regional Economies under EMU: Ireland and Spain


Today Thomas Conefrey and myself publish a working paper entitled “Managing Housing Bubbles in Regional Economies under EMU: Ireland and Spain”. It is available here .

With the advent of EMU, monetary policy can no longer be used to prevent housing market bubbles in regional economies such as Ireland or Spain. However, fiscal policy can and should be used to achieve the same effect. This paper shows that the advent of EMU relaxed existing financial constraints in Ireland and Spain, allowing a more rapid expansion of the housing stock in those countries to meet their specific demographic circumstances. However, the failure to prevent these booms turning into bubbles did lasting damage to the two economies, damage that could have been avoided by more appropriate fiscal policy action.

The failure to tighten fiscal policy in Spain and Ireland in the early years of this decade laid the ground for the housing market bubbles in the two economies. The Stability and Growth Pact proved a distraction: government budgetary balance was not an appropriate fiscal target for those two economies. By contrast, Finland, having learned from its mistakes twenty years ago, ran substantial government surpluses to prevent domestic overheating. Specifically in relation to overheating in the housing market, we consider that a temporary tax on mortgage interest payments (first suggested in 2001) should have been used to target overinvestment in housing, investment which seriously crowded out the traded sector of both economies. This tax would have mimicked an increase in interest rates. Obviously it will be a very long time before such a tax might be needed in either Spain or Ireland to limit overinvestment in housing.

The paper shows that demographic circumstances in both Spain and Ireland meant that it was appropriate that investment in housing in those two economies should have been somewhat higher than in their neighbours. Even after the housing bubbles have burst, the relatively low endowment of housing infrastructure in the two economies (relative to adult population) means that there will be a need for additional investment in the next decade, when the current excess supply has been worked off.

In the paper we also include a graph taken from our paper “Recovery Scenarios for Ireland” published in May  which, inter alia, considered likely housing demand over the coming decade. Our model included estimated 2009 population numbers which were quite close to the latest estimates published by the CSO. We assume that between 2009 and 2015 there will be cumulative net emigration of up to 120,000. Our analysis would suggest that the underlying population increase would lead to somewhat higher demand for housing than Brendan Walsh has estimated in a recent post for the period to 2015. In addition to the pure “demographic” effect we also factor in some increase in headship on the basis of the recent rise in the number of households, which possibly reflects falling rents.


Many Questions Remain About NAMA

I know we’re all suffering from NAMA fatigue and I’m not sure I have it in me to write too many more posts on it. Still, I do want to flag that, independent of arguments about the merits of the plan or not, it is extraordinary how little we have been told about how the plan is going to work or about the basis for the estimates released last week. I don’t have time to get into it all but here’s a list of unanswered questions.

Continue reading “Many Questions Remain About NAMA”

Publicly-Owned Banks and the ECB

Commenter MM highlighted this article from Saturday’s Irish Times by John Kelly and Eunan King as an interesting argument in favour of the government’s current approach towards the banks and against nationalising banks. The Kelly-King duo wrote that an

advantage of the proposed Nama model is that keeping most of the banks as stock market entities enables the ECB to fund part of the Irish Government’s deficit, in a manner that provides the veneer that the central bank is not buying government bonds directly.

This is a practice prohibited under the rules governing the establishment of the ECB, because it amounts to the central bank simply printing money to finance Government spending.

I do not believe that this argument is correct. The clause in the European Treaty prohibiting monetary financing is Article 101 of the Consolidated Treaty of European Union (link here). This has two paragraphs and they read as follows:

1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.

2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the ECB as private credit institutions.

So while Paragraph 1 rules out the ECB giving loan facilities to, or purchasing bonds from, national governments, Paragraph 2 explicitly states that this does not apply to publicly owned credit institutions. As such, lending to nationalised banks does not break the prohibition on monetary financing.

Furthermore, even under the NAMA plan no central bank is “buying govenment bonds directly”. Rather, what is being proposed—whether we have a stand-alone NAMA or a NAMA used in conjunction with nationalisation of some banks—is using these bonds as collateral for loans from the ECB.

CSO Seminar on Business Statistics in Ireland

2nd Business Statistics Seminar – 11 November 2009

The  theme  of  this  seminar  will be transport.  Transport is not only an important   economic   sector  but  also  a  sector  of  major  social  and environmental  importance.   As  concerns over cross-cutting issues such as health, sustainable travel and energy consumption have emerged, so have the demands for data.

CSO  is  continually striving to remain relevant to data users by compiling data on emerging developments and trends.

The  seminar  provides  an  ideal opportunity to hear about some of the new data  holdings  and  reports  being  developed  by CSO and learn about some ongoing research that is making use of CSO data.
Continue reading “CSO Seminar on Business Statistics in Ireland”

Demographic Influences on the Housing Market

Over the years there has been lots of discussion about the “fundamentals” of the housing market. Our “strong demographics” were often cited as contributing to the buoyant demand for housing. By this was meant that the rapid growth of the numbers in the household-forming age groups – relative to the number of units being vacated by deaths etc – translated into a firm demand for additions to the housing stock.  On this site, Colm McCarthy looked at the impact of demographics on the demand for housing yesterday, referring to recent evidence on the resumption of net emigration. Some of the ensuing discussion tended to get bogged down in trying to interpret very short-term indicators. I thought it would be helpful to provide a medium-term perspective on this aspect of the housing market.

The point of departure is that over the past ten or fifteen years Ireland’s population has been growing faster than that of any other OECD country. For example, our population grew by 14 per cent between 2002 and 2008 when the population of EU15 managed only a 4 per cent increase.

Continue reading “Demographic Influences on the Housing Market”

Quote from Goldman Sach email re: Irish bank bailout policies

Most of the Irish academic economists contributing this site are anti-NAMA in its current form, and Karl Whelan has expressed an interest in giving more balance to the site by generating some pro-NAMA threads.  Goldman Sachs’ chief European economist was gracious in allowing me to quote his recent email on Irish bank bailout policies including NAMA (the email was mentioned in today’s newspapers).  See below the fold.

Continue reading “Quote from Goldman Sach email re: Irish bank bailout policies”


One of the things that has been heartening about the current crisis is that the world has not lapsed into wholesale protectionism, as occurred during the 1930s. However, this observation, which is frequently made (including by myself), ignores the fact that it actually took a while before protection really got going after 1929. Smoot-Hawley (passed in June 1930) is not really a counter-example, since this represented the culmination of a process that had been in the works since the Presidential campaign of 1928. Elsewhere, the British only broke with free trade in 1931, and Ireland held out even longer. If the world economy were to keep falling at its 2008-9 pace for 2 or 3 years — a scenario that seems to have been averted (touch wood) — who knows what would happen.

That politicians would in such a scenario find it difficult to hold out against the pressures to which they would be subjected is reinforced by this report on the creeping protectionism which has been occurring around the world. The column uses the word ‘juggernaut’, which is presumably a reference to Richard Baldwin’s point that over the past few decades, free trade has been gathering momentum as it creates new outward-oriented constituencies with a vested interest in maintaining open markets. Historically, this juggernaut has more often operated in reverse — think of the long run effects of the Napoleonic Wars in France or the US, or World War I, or the Great Depression. In these cases, disintegration created new companies selling to internal markets who depended on protection for their future well-being — and thus created a powerful political mechanism for ‘locking in’ disintegration.

I don’t think that the juggernaut, which has been rolling in a free trade direction for decades now, has changed course yet. However, the Baldwin analysis suggests the possibility of ‘tipping points’ which might occur in various (hopefully unlikely) states of the world. Things which would make such states of the world less unlikely include major and persistent increases in unemployment, exchange rate misalignments perceived as conferring ‘unfair’ advantages on particular trading partners, and (especially) a combination of the two.

Jurgen Stark on ECB Operations

Here‘s an interesting speech from ECB Executive Board member Jurgen Stark about the plan for an exit strategy from the current non-standard operational framework.  Two quotes stand out for me:

As regards our area of responsibility, we are well prepared to phase out the measures we took in response to the crisis. The way these measures were implemented provides us with reasonable flexibility in unwinding them. For example, unless we decide otherwise, the maturity and size of our operations will automatically decrease, starting next year.

And, more interestingly,

It is therefore crucial to monitor the sources of funding constraints for banks. We need to judge whether these funding constraints relate to individual banks rather than to the functioning of the money market and the banking system as a whole. Our operational framework is not designed to counter funding problems at the individual bank level. Rather, our funding support is designed to alleviate funding risk to the extent that it is systemic.

Guest Post: Donal O’Mahony on NAMA

After a somewhat unsatisfactory appearance together on Prime Time last week, in which we got to share fourteen minutes of airtime with a trade union leader and a property developer, I asked Donal O’Mahony (Global Strategist with Davy’s) if he was interested in writing a guest post on NAMA for this blog. Donal agreed and his post is below the fold.

Continue reading “Guest Post: Donal O’Mahony on NAMA”

Demographics and Housing Demand

The presumption that Irish housing demand is somehow underpinned by favourable demographics has always been suspect, but recent data are unambiguousdly negative. The headline pop estimate for April shows population growth at 37,300 on the year. But the QNHS, also published this morning, gives figs for the 15+ population which show that growth ceased last Summer. The last five obs on seasonally adjusted 15+ pop are: Q2 08 – 3520.5; Q3 08 – 3529.5; Q4 08 – 3530.0; Q1 09 – 3529.9; Q2 09 – 3529.5.

Thus the growth over the year in the adult population all took place in the first quarter, and was in any event less than a quarter of the growth in total pop. Children don’t buy houses. The figs imply substantial out-migration of adults, at the rate of about 7 to 8000 per quarter recently.

Today’s release also gives pop estimates for April by age-group. The age groups up to 14 show healthy increases. But the groups 15-19, 20-24 and 25-29 are all falling. The 20-24 group fell, between April 2007 and April 2009, from 347,800 to 304,800, that is, by 12.4% in two years. Difficult to see how estimates of strong underlying flow demand for housing can be sustained.