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Separating the Wheat from the Chaff: I celandic and I rish Policy Responses to the Banking Crisis
Author(s) -
Howden David
Publication year - 2013
Publication title -
economic affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.24
H-Index - 18
eISSN - 1468-0270
pISSN - 0265-0665
DOI - 10.1111/ecaf.12044
Subject(s) - recession , deflation , economics , financial crisis , monetary economics , debt , capital (architecture) , business , market economy , finance , monetary policy , macroeconomics , history , archaeology
When the stories of the I celandic and I rish crises are told, they are framed as if one country did everything right to exit recession and the other country everything wrong. This article assesses their recovery policies and finds that the truth lies somewhere in between. By allowing its banking system to suffer substantial losses, I celand shielded its citizens from the costly debt overhang apparent in I reland. I reland's commitment to open capital markets and price deflation has allowed trade flows to remain robust, and relative prices to realign to signal sustainable production plans to entrepreneurs. These responses provide a roadmap for other small open economies with large financial sectors entering similar crises in the future.