Gaining Policy Credibility in the EMS: The Case of Ireland

32 Pages Posted: 15 Feb 2006

See all articles by Jeroen Kremers

Jeroen Kremers

affiliation not provided to SSRN

Date Written: April 25, 1989

Abstract

This paper presents evidence that Ireland`s disinflation policy has derived credibility from its participation in the exchange rate mechanism of the EMS. Before 1979, Irish inflation expectations followed mainly the expected movements of prices in the United Kingdom. Given the accommodating stance of exchange rate policy in the latter country, the influence of changes in international price competitiveness on expected inflation in Ireland was minor. In contrast, upon entry into the EMS the Irish expectations soon converged toward the expected price behavior of partners in the exchange rate mechanism, and competitiveness became an important influence on expected inflation in Ireland. A loss of competitiveness at the beginning of the disinflation seems to have been instrumental in establishing its credibility.

JEL Classification: 311, 431

Suggested Citation

Kremers, Jeroen, Gaining Policy Credibility in the EMS: The Case of Ireland (April 25, 1989). IMF Working Paper No. 89/36, Available at SSRN: https://ssrn.com/abstract=884736

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