Disinflation, switching nominal anchors and twin crises: The irish experience

Philip Lane

Journal of Economic Policy Reform, 2000, vol. 3, issue 4, 301-326

Abstract: This paper reviews the Irish disinflation of 1979-86 and the subsequent success in maintaining a low and stable average inflation rate. Joining the German-led EMS in 1979 broke a 153-year link with Sterling and hence is an example of a country switching nominal anchors in order to disinflate. Reducing inflation was made more difficult by a parallel fiscal crisis and the tension in maintaining competitiveness against diverging trading partners (the UK and continental Europe). Having paid the costs of disinflation and fiscal adjustment, Ireland has made a remarkable economic recovery in the last decade, combining rapid GDP and employment growth with an average annual inflation rate of only 2.4 percent.

Date: 2000
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DOI: 10.1080/13841280008523408

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