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Europe > Ireland

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Cover IMF Staff Country Reports
Euro Area Policies: 2024 Annual Consultation-Press Release; Staff Report; and Statement by the Executive Director for Member Countries
International Monetary Fund. European Dept.
The 2024 Article IV Consultation explains that the euro area is recovering gradually, with a modest acceleration of growth projected for 2024, gathering further speed in 2025. Increasing real wages together with some drawdown of household savings are contributing to consumption, while the projected easing of financing conditions is supporting a recovery in investment. A modest pickup in growth is projected for 2024, strengthening further in 2025. This primarily reflects expected stronger consumption on the back of rising real wages and higher investment supported by easing financing conditions. Inflation is projected to return to target in the second half of 2025. The economy is confronting important new challenges, layered on existing ones. Beyond returning inflation to target and ensuring credible fiscal consolidation in high-debt countries, the euro area must urgently focus on enhancing innovation and productivity. Higher growth is essential for creating policy space to tackle the fiscal challenges of aging, the green transition, energy security, and defense.
Keywords:
EU institution; EU industrial; headline inflation; EU climate; two-sided inflation risk; Inflation; Labor markets; Fiscal consolidation; Europe; Global
Cover IMF Working Papers
The Diagnostic Financial Accelerator
Lahcen Bounader
and
Selim A Elekdag
We develop a model with diagnostic expectations (DE) and a financial accelerator (FA) that generates mutually reinforcing shock amplification, especially in the case of demand shocks. However, supply shocks can be dampened via a debt deflation channel, which is strengthened amid DE. Importantly, the model results in a worsening of the inflation-output volatility trade-off confronting policymakers. In contrast to most of the literature—which argues against targeting the level of asset prices—our financial accelerator model with DE suggests that targeting house price growth may result in welfare gains.
Keywords:
Financial Accelerator; Diagnostic Expectations; Optimal monetary policy; Instrument rules; debt deflation channel; inflation-output volatility trade-off; house price growth; inflation trade-off; model dynamics; Inflation; Asset prices; Housing prices; Consumption; Business cycles; Global
Cover IMF Staff Country Reports
Ireland: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper provides an international perspective to the authorities’ two recent policy measures: setting up new savings and counter cyclical and climate infrastructure funds and reforming the judicial review of planning decisions in Ireland. The first essay presents international best practices in the design and operation of sovereign wealth funds that could inform the setup of the two new funds in Ireland. It highlights the importance of operating the funds within a strong fiscal policy framework. The second essay reviews Ireland’s planning and permitting system, underscoring the key elements that have hindered public investment. It also looks into the government’s proposed Bill to reform the planning system and contrasts its key features with those of other international jurisdictions. It finds that several issues may contribute to the inefficiencies in the planning and judicial review system, such as the loose standing requirements and lack of mandatory timelines related to judicial review, as well as institutional governance issues within the planning board, which the newly proposed reforms and legislative measures seek to address.
Keywords:
housing affordability; D. policy option; savings fund; modernizing judicial review; impulse response; Housing; Housing prices; Pension spending; Global
Cover IMF Staff Country Reports
Ireland: 2023 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. European Dept.
This 2023 Article IV Consultation highlights that Ireland’s economy has shown remarkable resilience in the face of consecutive shocks. The Irish economy has displayed remarkable resilience in the face of recent consecutive shocks and is well-positioned to achieve a soft landing. Growth is expected to moderate to a still solid level in 2023-24, from a very high base, as tighter financial conditions, domestic capacity constraints, and weakening external demand weigh on the economy. Continued fiscal prudence is warranted to complement monetary tightening in sustaining disinflation and to build adequate buffers for the future. As fiscal policy should avoid adding to aggregate demand amid still elevated inflation, tax revenue over performance should be saved. The 2023 fiscal stance is appropriate. Fiscal policy should support growth-enhancing investment and broaden the tax base. The authorities’ decision to save part of excess corporate income tax revenues in two savings funds is welcome. Tighter financial conditions, persistent inflation, and rising vulnerabilities in the commercial real estate market with linkages to leveraged non-banks call for continued heightened vigilance of financial stability risks.
Keywords:
liability positions vis-à-vis nonresident; inflation development; transparency policy; money market rate; quarterly balance of payments; growth-enhancing investment; Medium-term fiscal policy; persistent inflation; Ireland's economy; Housing; Inflation; Corporate income tax; Credit; Global
Cover IMF Working Papers
Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania
Mantas Dirma
and
Jaunius Karmelavičius
Despite having introduced borrower-based measures (BBM), Lithuania's housing and mortgage markets were booming during the low-interest-rate period, casting doubt on the macroprudential toolkit's ability to contain excessive mortgage growth. This paper assesses the adequacy of BBMs’ parametrization in Lithuania. We do so by building a novel lifetime expected credit loss framework that is founded on actual loan-level default and household income data. We show that the BBM package effectively contains mortgage credit risk and that housing loans are more resilient to stress than in the preregulatory era. Our BBM limit calibration exercise reveals that (1) in the low-rate environment, income-based measures could have been tighter; and (2) borrowers taking out secondary mortgages rightly are and should be required to pledge a higher down payment.
Keywords:
macroprudential policy; borrower-based measures; LTV; mortgage credit risk; lifetime expected loss; probability of default.; calibration exercise; BBM package; modeling mortgage risk; Lithuania's housing market; Mortgages; Loans; Credit risk; Housing prices; Macroprudential policy instruments; Europe; Baltics; Global
Cover IMF Staff Country Reports
Euro Area Policies: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Euro Area; IMF Country Report No. 23/264
International Monetary Fund. European Dept.
The 2023 Article IV Consultation discusses that the euro area economy has shown remarkable resilience in the aftermath of Russia’s invasion of Ukraine and the largest terms of trade shock in several decades, thanks to a swift policy response and a strong rebound in contact-intensive services. Looking ahead, growth is expected to pick up gradually throughout 2023 and 2024, supported by a recovery in real incomes in the context of continued tight labor market conditions, a further easing of supply constraints, and firmer external demand, even as financial conditions continue to tighten. While headline inflation has fallen sharply recently after reaching record high levels, core inflation is proving more persistent. As tight financial conditions restrain demand and supply shocks dissipate further, inflation is set to decline further but is expected to remain elevated for an extended period. Renewed supply shocks, which could result from an escalation of the war in Ukraine and a related increase of commodity prices, or a further intensification of geoeconomic fragmentation, would also push up inflation and hurt growth. On the upside, the economy could again prove more resilient than expected, especially amid a still large stock of excess savings.
Keywords:
Euro area headline inflation; inflation expectation; EU climate investment fund; EU AML authority; EU institution; EU bank; core inflation; EU economy; Inflation; Energy prices; Fiscal stance; Monetary tightening; Global; Europe
Cover IMF Working Papers
Commercial Real Estate in Crisis: Evidence from Transaction-Level Data
Mr. Adrian Alter
,
Elizabeth M. Mahoney
, and
Cristian Badarinza
During the past two decades, the commercial real estate (CRE) market has been impacted by major disruptions, including the global financial crisis and the Covid-19 pandemic. Using granular data from the U.S., we document how these crises have unfolded and elaborate on the role of heterogeneity and underlying shocks. Both a set of reduced-form approaches and a structural framework suggest a prominent role for demand-side local factors in the short run, along with significant shifts in preferences during crisis episodes. However, valuations become more closely linked to macro-financial factors over the long term. A one-standard deviation tightening in financial conditions is associated with a drop of about 3% in CRE prices in the following quarter, with a stronger impact on the retail sector and milder effects in states where household indebtedness is lower.
Keywords:
Non-residential Real Estate; Financial Conditions; Liquidity; Big Data; level data; CRE price; household indebtedness; CRE market; CRE transaction; COVID-19; Real estate prices; Global financial crisis of 2008-2009; Global; Middle East and Central Asia
Cover IMF Staff Country Reports
Ireland: Financial Sector Assessment Program-Technical Note on Macroprudential Policy Framework and Tools
International Monetary Fund. Monetary and Capital Markets Department
Ireland is a small open economy that is part of a monetary union and has a major financial system. Within the Euro Area (EA), Ireland comprises a relatively small proportion of aggregate GDP (3.4 percent), of which a significant portion is attributable to foreign-owned multinational enterprises (MNEs). Yet, the Irish financial system holds assets of EUR 7.9 trillion, over 18 times GDP. Since monetary policy is carried out by the European Central Bank (ECB) for the entire EA, macroprudential policy has the potential to play a critical stabilizing role for the Irish financial system.
Keywords:
bank funding; bank lending; CRE market vulnerability; lending to SME; bank sector; commercial real estate; Housing prices; Mortgages; Financial sector stability; Macroprudential policy instruments; Credit; Global
Cover IMF Staff Country Reports
Ireland: 2022 Article IV Consultation-Press Release; Staff Report; and Informational Annex
International Monetary Fund. European Dept.
This 2022 Article IV Consultation with Ireland highlights that the economy has rebounded strongly from the pandemic. The financial sector weathered the pandemic crisis well thanks to high capital buffers and effective policy support. The impact of the pandemic on borrowers’ financial position has started to dissipate, but uncertainty remains. While the outlook is strong, uncertainty is substantial due to the indirect impacts of the war in Ukraine. Several pre-pandemic challenges remain: housing shortages, infrastructure, social and green investment gaps, and the need to strengthen multinational enterprises’ inward linkages to broaden growth and make it more inclusive. There is also a need to address the Global Financial Crisis legacy effects on the financial system and tackle the factors contributing to high lending interest rates. The fiscal stance is broadly appropriate. However, in the short term, two-way fiscal flexibility is needed to strike a balance between supporting the economy and containing inflation. In case growth disappoints, automatic stabilizers should be allowed to fully operate and fiscal space deployed, if necessary, through high-quality measures. Structural reforms should aim to remove bottlenecks, increase productivity, and reduce inequities. In particular, housing supply policies should be further strengthened, with a focus on boosting productivity in the construction sector and improving the planning and permit processes.
Keywords:
government support; money market rate; financial asset; liability positions vis-à-vis nonresident; GDP deflator; labor market; headline inflation; Housing; Inflation; Financial Sector Assessment Program; Credit; Global
Cover IMF Working Papers
Are Climate Change Policies Politically Costly?
Davide Furceri
,
Michael Ganslmeier
, and
Mr. Jonathan David Ostry
Are policies designed to avert climate change (Climate Change Policies, or CCPs) politically costly? Using data on governmental popular support and the OECD’s Environmental Stringency Index, we find that CCPs are not necessarily politically costly: policy design matters. First, only market-based CCPs (such as emission taxes) generate negative effects on popular support. Second, the effects are muted in countries where non-green (dirty) energy is a relatively small input into production. Third, political costs are not significant when CCPs are implemented during periods of low oil prices, generous social insurance and low inequality.
Keywords:
EPS change; policy design; Policy implication; popular support; baseline model; Climate change; Climate policy; Fuel prices; Environmental policy; Natural disasters; Global