Gerard O'Reilly

Has Euro-area Inflation Persistence Changed Over Time?

This paper analyzes the stability over time of the econometric process for euro-area inflation since 1970, focusing in particular on the behavior of the so-called persistence parameter (the sum of the coefficients on the lagged dependent variables). Perhaps surprisingly, in light of the Lucas critique, our principal finding is that there appears to be relatively little instability in the parameters of the euro-area inflation process. Full-sample estimates of the persistence parameter are generally close to 1, and we fail to reject the hypothesis that this parameter has been stable over time. We discuss how these results provide some indirect evidence against rational expectations models with strong forward-looking elements, such as the New Keynesian Phillips curve.

US monetary policy announcements and Irish stock market volatility

The influence of foreign monetary policy decisions on the volatility of the Irish stock market is investigated. Specifically, the influence of US monetary policy announcements on the ISEQ is examined. Evidence of the so-called calm before the storm is found, i.e., there appears to be a decline in volatility on the day prior to an FOMC meeting and a subsequent increase in volatility after the results of the FOMC meeting is made known. Also evidence is found to suggest that ISEQ volatility is influenced by surprise changes in US monetary policy. Moreover, US monetary surprises appear to affect Irish stock return volatility asymmetrically with a surprise tightening of US monetary policy leading to an increase in Irish stock return volatility. This paper represents an important step in addressing the issues of spillover identification between the USA and the Irish stock market.

An analysis of the transmission mechanism of monetary policy in Ireland

This paper examines the impact of a monetary policy shock on output, prices and the exchange rate for Ireland during its participation in the EMS. The paper draws on recent techniques used in the structural vector autoregression literature. Results suggest that an exogenous temporary increase in the short-term interest rate leads to a decline in output and prices with the latter responding more sluggishly. In addition, a higher interest rate leads to an immediate appreciation of the domestic exchange rate and a subsequent depreciation of the currency. Exchange rate or forward bias puzzle, which are prevalent in other studies, are not found. The robustness of these results is checked under a number of alternative identifications schemes

Supply Response in an Uncertain Market: Assessing Future Implications for Activity Levels in the Irish Housing Sector

Abstract After ten years of unprecedented increases in both prices and activity levels, the Irish housing market has entered a period of significant decline. In 2007, Irish house prices, for the first time in recent history, experienced negative growth rates. Similarly, rates of house building began to slow appreciably and leading indicators within the housing sector suggest that house building will contract significantly in the years ahead to levels well below the record level of construction in 2006. The sustained increase in housing construction prompted by the rapid increase in prices resulted in the Irish construction sector assuming a position of considerable importance within the overall economy. A significant slowdown in housing activity could have far-reaching domestic consequences. In this paper, we use a recently developed model of the housing sector to gauge what the likely future supply levels of housing will be in response to the slowdown in demand-side pressures.

Identifying and Forecasting House Price Dynamics in Ireland

While increased attention has, of late, focussed on models of house prices, few,if any, studies have examined house prices from a purely forecasting perspective. However, the need for accurate and timely forecasts of house prices has grown as the rate of house price inflation is more and more important to policy discussions such as those governing decisions on inflation. This is further underscored with the development of financial markets products based on houseprice index. In this paper, we propose that a simple univariate moving average (MA) model can provide optimal forecasts of Irish house price inflation when compared with a suite of standard forecasting and structural house price models. This result echoes similar recent findings for forecasts of US inflation rate.

International monetary policy shocks and Irish market rates

The influence of international interest rate changes on the Dublin interbank money market rates (Dibor) is investigated. Specifically, the impact of (un)expected changes in German(Euro) area and US policy rates on various Dibor rates between 1991 to 2002 is analysed in an event type study. Decomposition of (un)expected changes of policy rates are based on future markets and is akin to the method of Kuttner. Overall, results suggest that Dibor rates respond positively and significantly to unanticipated Euro and US policy rate changes while expected changes have an insignificant impact.

Was the Securities Markets Programme Effective

We examine whether the ECBs Securities Markets Programme (SMP) was effective in reversing or stabilising adverse movements in Irish sovereign yields. Our initial analysis examines whether daily yield movements responded significantly to interventions. At the daily frequency we find no significant effects despite dealing with endogeneity and omitted variable bias. In contrast, making use of the exact timing of interventions and movements in high-frequency inter-dealer quotes, we find clear evidence that SMP stabilised yields on average from the moment of the initial intervention until the end of trading on intervention days. However, adverse pre-intervention movements were significant and these were seldom reversed by intervention effects.