Cointegration and equilibrium-correction modeling techniques are employed to examine aggregate and sectoral implications for Irish-UK trade of breaking the Sterling/Irish pound link, motivated by models of exchange rate uncertainty effects on trade and pass through. A UK demand function for Irish exports, including estimates of non-price competitiveness, measures the impacts of real and nominal exchange rate volatility on trade. A negative short-run impact of nominal volatility on aggregate Irish exports is found and volatility effects are present in four sectors. A mark-up model of prices, using a specially constructed data set, reveals complete long-run exchange rate pass-through for aggregate and sectoral Irish imports from the UK, consistent with the hypothesis that Ireland is a small open economy. Incomplete short-run pass-through is observed for all sectors. UK production costs in three sectors display negative signs, suggesting UK producers may follow a strategy of pricing in Euros. The role of trade In explaining Irish output is also investigated using innovative Granger-causality tests using a production-function V AR approach based on a seven-variable model, where aggregate, sectoral, and destination-specific tests are conducted. Bi-directional aggregate export-output causality is estimated. Labour and capital show no statistically significant causal relationship to aggregate Irish output. The strict export-led-output hypothesis is supported for US and European (excluding UK) trade while causation is measured from Irish output to Irish exports to the UK. Sectors reveal differing causality patterns.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:557288 |
| Date | January 2001 |
| Creators | Doyle, Eleanor |
| Publisher | University of Birmingham |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
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