Measuring Structural Budget Balances in a Fast-Growing Economy: The Case of Ireland

Bank of Italy - Indicators of Structural Budget Balances Conference, p. 251, 1998

22 Pages Posted: 18 Jul 2012

See all articles by David Cronin

David Cronin

Central Bank and Financial Services Authority of Ireland

Daniel McCoy

Economic and Social Research Institute, Ireland

Date Written: November 28, 1998

Abstract

The paper on the Irish experience by Cronin and McCoy highlights how specific features of the economy may account for large differences in the results of the two approaches – those based on a production function and those relying on statistical filters – and hinder accurate estimates of the output gaps. Both statistical filter and production function approaches are complicated by the large variability in Irish output growth and the existence of a highly-elastic labour supply and highly-mobile capital. These features of the Irish economy may explain the disparity of several percentage points that exists between the estimated potential growth rates considered applicable to Ireland at present. Such variation can, in general, weaken the use of structural budget balance as an indicator of a Member State’s performance with respect to the Stability and Growth Pact. Cronin and McCoy also point out that systematic discretionary policy may result in elasticities not being constant over time, making standard estimates less reliable.

Suggested Citation

Cronin, David and McCoy, Daniel, Measuring Structural Budget Balances in a Fast-Growing Economy: The Case of Ireland (November 28, 1998). Bank of Italy - Indicators of Structural Budget Balances Conference, p. 251, 1998, Available at SSRN: https://ssrn.com/abstract=2109586

David Cronin (Contact Author)

Central Bank and Financial Services Authority of Ireland ( email )

P.O. 559 Dame Street
Dublin 2, D2
Ireland

Daniel McCoy

Economic and Social Research Institute, Ireland ( email )

Whitaker Square
Sir John Rogerson's Quay
Dublin 2
United States

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