Given the estimated neutral rate of interest, desirable inflation rate and potential output growth, we have calculated the level of interest rate implied by the standard Taylor rule with equal weight of 0.5 to both inflation and output gap. The trend in estimated interest rate implied by Taylor rule showed periods of significant departure from the actual call money rate trajectory.
Although global growth is projected to be weak, the upward movement offers some buoyancy to help stabilize Irish economic activity too, and provide a platform on which a recovery to future growth from 2010 can be built.