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The near-death experience of the Celtic Tiger: a model-driven narrative from the European sovereign debt crisis

Manfred Gärtner (), Björn Griesbach and Giulia Mennillo ()

No 1321, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: We narrate Ireland’s recent odyssey from the pride and envy of Europe to kneeling supplicant through the eyes of an econometric model of the government bond market. The exercise suggests that, in essence, two developments triggered and propelled Ireland’s drift towards sovereign default: first, the global financial crisis that drove Ireland into a severe recession with collapsing tax revenues and increasing unemployment; second, a gap between the post-2007 increase in sovereign default risk that can actually be linked to macroeconomic fundamentals and the much bigger increase in perceived risk reflected by high interest rates and communicated by the massive downgrades of Ireland’s sovereign debt rating.

Keywords: Financial crisis; Ireland; public debt; sovereign ratings; government budget; empirical model (search for similar items in EconPapers)
JEL-codes: H62 H68 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-09
New Economics Papers: this item is included in nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2013:21

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