Working Paper: CEPR ID: DP18582
Authors: Patrick Honohan
Abstract: The paper reviews the causes, evolution and resolution of the severe property-related macro-financial boom and bust that crippled the Irish economy 2008-13. Among the distinctive features were a blanket government guarantee of banking liabilities, a run on the national banking system financed by a supranational central bank, and a sovereign-bank funding-cost doom loop. There were missteps in both the private and official sectors, at home and abroad, as the authorities felt their way towards corrective policies that were ultimately effective.
Keywords: banking crisis; Ireland; euro area
JEL Codes: G01; H12; H63; H81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank credit-driven property price boom (E51) | increased bank lending (G21) |
| increased bank lending (G21) | liquidity crunch when property prices fell (G01) |
| government’s blanket guarantee (H81) | loss of market access for the government (G18) |
| missteps in policy (D78) | further economic decline (N16) |
| deterioration of government finances (H69) | instability of the banking sector (F65) |
| failure to restrain the credit boom (F65) | costly economic adjustment (F32) |