Capacity constraints in the Irish economy? A partial equilibrium approach. ESRI Research Notes 2014/4/1

McQuinn, Kieran (2018) Capacity constraints in the Irish economy? A partial equilibrium approach. ESRI Research Notes 2014/4/1. UNSPECIFIED.

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Abstract

Given the consistently high growth rates experienced by the Irish economy since 2013, an inevitable policy question is whether the economy will face capacity constraints in the short to medium-term. By capacity constraints we mean capital, labour or financial constraints which may prevent the economy from reaching its potential level of output and from growing on a sustainable basis. Typically, one way to assess capacity constraints from a macroeconomic perspective is to estimate an ‘output gap’ and to assess, as a result, whether actual output levels in the economy are above or below the potential level. While estimates of the output gap in an Irish context are problematic in general due to the small open nature of the domestic economy, they are particularly difficult at present due to the well-cited issues with the National Accounts.2 As a result, in this Note, we take a partial approach to the question by addressing a variety of different issues to do with the labour market, net migration and the total amount and allocation of credit in the economy.

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