Sliding Doors Cost Measurement.A Restrictive Approach to Analyzing the Net Economic Cost of Policy Decisions and an Application to Irish Financial Regulation
Gregory Connor () and
Brian O'Kelly
Additional contact information
Brian O'Kelly: Dublin City University
Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth
Abstract:
This paper develops a restrictive procedure for evaluating economic policy decisions, by comparing actual economic history to a simulated history where a specific policy decision is replaced with a counterfactual, but credible, alternative. Our procedure is theoretically straightforward, but empirically problematic since it requires the identification of a feasible policy alternative and a model linking a specific policy choice to subsequent economic outcomes. We apply the procedure to the mistaken decision to maintain an excessively lax financial regulation regime in Ireland during the period 2003 – 2008. We measure the differences in banking sector stability and national income that would have occurred if the stricter regulatory regime imposed in Ireland in 2009 had been put in place six years earlier. We find that a few simple, reasonably prudent regulatory controls on the Irish banking sector would have greatly limited the vulnerability of the domestic sector to the 2008 global credit freeze, and almost certainly prevented the 2008-2009 collapse of the domestic banking sector and the consequent deep Irish recession of 2009-2010. On the other hand, the risky and unsustainable inflow of foreign capital mediated by the domestic banks accounts for a substantial part of Irish economic growth during the 2003-2007 period. Without this net foreign borrowing inflow, cumulative gross domestic product over the early period would have been substantially lower.
Pages: 22 pages
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://repec.maynoothuniversity.ie/mayecw-files/N214a-10.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n214a-10.pdf
Access Statistics for this paper
More papers in Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth Contact information at EDIRC.
Bibliographic data for series maintained by ().