This is interesting.
The Irish Times has a new series on this topic, with articles commissioned from ‘leading’ (always that word) economists. Today, it is John Fitzgerald: you can read his views here.
A series with a similar theme but a very different set of contributors ran back in August. Here is a partial list:
Sean Quinn (August 11 2008): here.
Derek Quinlan (August 12 2008): here.
Philip Lynch (August 13 2008): here.
Denis O’Brien (August 14 2008): here.
Michael O’Sullivan (August 20 2008): here.
Mark Fitzgerald (August 21 2008): here.
An indication of the pressures on Ireland’s competitiveness is provided by the Harmonised Competitiveness Index, the December figure for which has recently been released on the Central Bank website. While the real HCI had been falling gradually since the early part of the last year (a rise in the indicator implies a disimprovement in competitiveness, while a fall in the indicator indicates an improvement), the December figure jumped upwards by 4.0% over the previous month, largely due to the appreciation of the euro particularly against sterling. The Dec 2008 value of 126 puts us back where we were at the beginning of last year.
The FT reports that a big shift to the left is predicted.
If the Chinese have any sense, they will let their currency appreciate now.
Update: Willem Buiter is also concerned about the looming threat to world trade that this would seem to imply. He displays an extreme scepticism about whether nominal exchange rates ever matter for the trade balance, writing that
only the most bone-headed of ultra-Keynesians believes that a country can influence its effective real exchange rate in a lasting manner by managing/manipulating its effective nominal exchange rate, let alone some bilateral nominal exchange rate.
I guess the key phrase here is “in a lasting manner”, and I defer to Philip about what sort of time scale this implies empirically. I guess that not all economists will agree with Buiter on this particular point. But the broader point, which is critically important, is that we can’t take the maintenance of an open trading system for granted.