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©1998 International Monetary Fund

December 1998

IMF Staff Country Report No. 98/126

Ireland: Selected Issues

This Selected Issues report on Ireland was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with this member country. As such, the views expressed in this document are those of the staff team and do not necessarily reflect the views of the Government of Ireland or the Executive Board of the IMF.

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Frontmatter Page

INTERNATIONAL MONETARY FUND

IRELAND

Selected Issues

Prepared by Natasha Koliadina, Arild Lund, Hossein Samiei and Antoine Magnier (All EUI)

Approved by European I Department

November 5, 1998

Contents

• I. Fiscal Consolidation in Ireland and Challenges Ahead

  • A. Introduction

  • B. Fiscal Consolidation in the 1980s

  • C. Fiscal Policy in 1997 and 1998

  • D. Challenges Ahead

• II. On the Relevance of the Output Gap in Ireland

• III. Causes of Asset Price Inflation

  • A. Introduction

  • B. Financial Supervision and Regulation in Ireland

  • C. The Rise in Asset Prices and the Performance of Lending Institutions

  • D. Determinants of House Prices

  • E. Determinants of Equity Prices

  • F. Concluding Remarks

• IV. The Pension System in Ireland: Long–Term Prospects

  • A. Introduction

  • B. An Overview of Ireland’s Pension System

  • C. Recommendations of the Report of the Pension Board

  • D. Long–Term Financing of Public Service Pensions

  • E. Conclusion

• References

• V. Developments in Wage Differentials and Taxation of Labor Income Under The Centralized Wage Agreements

• Tables

• I.

  • 1. General Government Structural Financial Balance, 1982–97

• III.

  • 1. Credit Institutions: Assets and Liabilities vis–vis Residents, Selected Years

  • 2. Credit Institutions: Measures of Capitalization

  • 3. Credit Institutions; Indicators of profitability

  • 4. Augmented Dicky–Fuller Unit Root Tests

  • 5. Cointegration Likelihood Ratio Tests for the House Price Equation

  • 6. Maximum–Likelihood Estimates of the Coefficients in the Cointegrating VAR (1) for Relative House Prices and Likelihood Ratio Tests of Exclusions

  • 7. Estimated Error–Correction Model for New House Prices Based on the Cointegrating VAR (1) in Table 6

  • 8. Estimated Error–Correct Model for Loans Paid for Ne Houses Based on the Cointegrating VAR (2) in Table 6

  • 9. Cointegration Likelihood Ratio Tests for the Equity Price Equation

  • 10. Estimated Model for the Rate of Change in Equity Prices using OLS

• Figures

• I.

  • 1. General Government Finance

  • 2. Output Gap and General Government Balance

  • 3. Labor Inputs for Potential Output Calculation

• II.

  • 1. Potential GDP and the Output Gap

  • 2. Output Gaps and Inflation

• IV.

  • 1. Dependency Ratios and Long–Term Pension Outlays

• Text Boxes

• I.

  • 1. Recent Tax Measures

• IV.

  • 1. Pay–Related Social Insurance

  • 2. Summary of the Assumptions Underlying the Pension Board Estimates

• Statistical Appendix Tables

• A1. National Accounts

• A2. Distribution of National Income

• A3. Gross Capital Formation

• A4. Sectoral Origin of Gross National Product

• A5. Industrial Production

• A6. Summary of Balance of Payments

• A7. Merchandise Trade

• A8. Exports by Sector of Origin

• A9. Foreign Trade Shares

• A10. Imports Classified by End Use

• A11. Services and Transfers

• A12. Consumer, Wholesale, and Tradable Prices Indices

• A13. Wage and Productivity Indicators in Manufacturing

• A14. Population and Employment

• A15. Employment by Sector

• A16. Overview of Public Finances

• A17. Public Sector Debt

• A18. Summary of Current and Capital Budgets

• A19. Central Government Current Expenditure

• A20. Public Capital Program

• A21. Central Government Current Revenue

• A22. Public Sector Employment

• A23. EC Receipts, Loans, and Contributions

• A24. Financing of the Exchequer Borrowing Requirement

• A25. Exchange Rates and Interest Rates

• A26. Exchange Rate Developments

• A27. Selected Interest Rates

• A28. Developments in Monetary and Credit Aggregates

• A29. Monetary Survey

• A30. Distribution of Private Sector Credit

• A31. Official External Reserves

• A32. Capital Transactions (Net)

• A33. External Debt

• A34. External Government Debt