WHAT CAUSES IRISH RECESSIONS - FLUCTUATIONS IN AGGREGATE DEMAND OR AGGREGATE SUPPLY

The new classical view of the market economy is used to impose restrictions on a vector autoregression of output, interest rates, prices and money, to identify aggregate demand and supply structural disturbances. We use the estimated structural vector autoregression to decompose Irish GDP growth into components associated with major macroeconomic disturbances in order to identify the likely causes of Irish recessions. The results suggest that recessions in the 1970s were mainly due to aggregate supply shocks and that aggregate demand shocks played an increasingly more important role in the recessions of the 1980s and 1991.