Author: Philip Lane

Ten Years of the Euro

We now have a full decade of evidence concerning the impact of European monetary union on Ireland and the other member countries. While my view is that the euro has been beneficial in many ways, the next year or two will be highly revealing about the capacity of member countries to undertake economic adjustment while operating within the constraints of a common currency area.

The Economist has a nicely balanced article in its most recent edition: “Demonstrably Durable“, while John Hurley had an op-ed giving the local central bank view in the Irish Times on December 30th.

I gave my own view on the impact of the euro on Ireland in an article for the Sunday Business Post back in May: you can read it here.

I have also recently written a couple of academic survey papers on different dimensions of the euro:

“ EMU and Financial Integration,” IIIS Discussion Paper No. 272, December 2008. Prepared for the 5th Central Banking Conference of the European Central Bank.

“ The Macroeconomics of Financial Integration: A European Perspective,” IIIS Discussion Paper No. 265, October 2008. Prepared for the 5th Annual Research Conference of DG-ECFIN (European Commission).

Designing a Fiscal Response for the Crisis: The IMF View

The IMF has released a detailed study about the optimal design of fiscal policy to combat the crisis. A key feature of this report is that it accepts that the appropriate fiscal response varies across countries. In particular, this extract from an online interview with two of the report’s authors (Olivier Blanchard and Carlo Cottarelli) is relevant to the Irish situation:

Cottarelli: That said, it is critical that this fiscal stimulus isn’t seen by markets as undermining medium-term fiscal sustainability. That would be counterproductive, including in its effects on demand today. Indeed, we’ve said that not all countries can afford a fiscal expansion.

How the stimulus package is designed is also key: fiscal measures should be reversible, and governments may want to precommit to unwinding some of the policies. Also, any stimulus should be formulated within a robust medium-term fiscal framework, which could be made more credible by strengthening independent oversight of fiscal policy.

Adjustment Packages: Learning from Latvia

Edward Hugh has written an interesting analysis of the new Latvian adjustment programme: the focus on nominal wage reductions in the public sector is relevant for Ireland. You can read it here.

Revisionism at the Chicago School

Bloomberg has a very interesting article on how the financial crisis is leading to a re-think of the wisdom of free markets at the University of Chicago: you can read it here.

In Praise of Quantitative Easing

Bob Lucas writes in the WSJ today on the virtues of quantitative easing: you can read it here.