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Monetary regimes, the term structure and business cycles in Ireland, 1972–2018
Author(s) -
Stuart Rebecca
Publication year - 2020
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12322
Subject(s) - economics , pound (networking) , discretion , irish , yield curve , term (time) , monetary policy , business cycle , monetary economics , pound sterling , predictive power , probit model , macroeconomics , interest rate , econometrics , political science , linguistics , philosophy , physics , epistemology , quantum mechanics , world wide web , computer science , law
The literature emphasizes the role of monetary policy for the term structure's ability to predict business cycles. Between 1972 and 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 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 discretion to set interest rates based on the domestic conditions.