Employment and Inflation Responses to an Exchange Rate Shock in a Calibrated Model

Colin Bermingham
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Colin Bermingham: Central Bank and Financial Services Authority of Ireland, Dublin

The Economic and Social Review, 2006, vol. 37, issue 1, 27-46

Abstract: Ireland has no ability to affect the exchange rate through interest rates following the adoption of the euro. This paper provides a theoretically transparent method for analysing the impact of an exchange rate shock on employment and the aggregate price level in this context. The split between the tradable and non-tradable sectors of the economy is highlighted. The model is used to examine a specific exchange rate shock. The results of this calibration suggest that a sustained increase of 15 per cent in the value of the euro would reduce employment by 1.5 per cent and the domestic price level by about 7.3 per cent.

Date: 2006
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http://www.esr.ie/Vol37_1/02_Birmingham_article.pdf First version, 2006 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:eso:journl:v:37:y:2006:i:1:p:27-46

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