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Monetary regimes, the term structure and business cycles in Ireland, 1972-2018

Rebecca Stuart ()

No 2020-03, QUCEH Working Paper Series from Queen's University Belfast, Queen's University Centre for Economic History

Abstract: The ability of the term structure (specifically the term spread, or the difference between the long and short ends of the yield curve) to predict economic activity is empirically well-established for the US, but less so for small open economies. The literature emphasizes the role of monetary policy for this predictive ability. Between 1972-2018, Ireland experienced three monetary regimes: first, the Irish Pound was fixed to Sterling (1972-1979); second the Pound floated in a band when Ireland was a member of the EMS (1979-1998); and third, as a member of the euro area (1999-2018). Using dynamic probit models and monthly data, I show that the term spread only had predictive power during the second regime, the only one in which the Central Bank of Ireland had any discretion to set interest rates based on domestic conditions.

Keywords: Ireland; term structure; recessions; monetary regimes (search for similar items in EconPapers)
JEL-codes: C25 E00 E43 N14 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
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Journal Article: Monetary regimes, the term structure and business cycles in Ireland, 1972–2018 (2020) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:qucehw:202003

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