Exchange rate policy when the labour market exhibits hysteresis

This paper analyzes the effects of exchange rate shocks in a small open economy whose labor market exhibits hysteresis. The model is used to highlight deficiencies in the response of the Irish authorities to exchange rate crisis of 1992/93. A secondary purpose of the paper, though, is to induce those who accept that the Irish labour market is characterised by hysteresis but who reject the argument made here that a more aggressive devaluation should have been pursued, to spell out the labour-market model upon which their policy prescriptions are based.

A hard copy is available in UCD Library at GEN 330.08 IR/UNI