Professor Alan Barrett:

The Deputy might be referring to the very particular issue of the methods used to measure the concept of potential output. This was a sort of academic concern for a very long time, but it has taken on a new reality under the new fiscal rules. While the Deputy is right when he suggests there was criticism regarding a specific issue, I do not think the criticism necessarily related to broad modelling issues.

Deputy Ryan's second question related to economic research in other countries. There is no single model on this. Some of the larger countries have multiple models with various different sources of funding. The United Kingdom has two research institutes that mirror the ESRI. Both of these agencies - the National Institute of Economic and Social Research and the Institute for Fiscal Studies - tend to draw on Government funding through competitive grants. The UK system is a little different from the system in Ireland. The CPB in the Netherlands is an independent but fully state-funded statutory organisation that does everything the ESRI does, as well as many things that are proposed for the budgetary office. For example, it does costings of budgetary programmes and election manifestos, economic forecasting and a range of other activities. There is no sort of single model that applies.

The Deputy also asked whether our analysis is ex anteor ex post. The vast majority of what the ESRI does would have an ex postdimension. When a particular policy or programme is operating, we typically use data to see what is, or what has been in the recent past. The exception to that is our input into something like the spring or summer economic statement. I will explain how it works.

The Department of Finance asks the institute to use the macro model to run a whole load of simulations. I touched on this in my opening statement. A simulation might relate to the impact on Ireland of GDP in the global economy being 1% lower than it is or the effect on this country of an interest rate increase. The Department will have a sort of central forecast on which all its numbers hang and we look at the possible effects of various sensitive-type issues on that. The Department asks us to do policy simulations and to ask "What if" questions. This requires us to look at the effects of major tax changes, for example. Capital expenditure often arises in this context. We might be asked to assess the impact of a doubling in the public capital programme, for example. I will explain how it tends to work. After the Department of Finance has contacted us, one of my colleagues will work quite intensively for a week or two. It is very often the case that just one or two of the simulations run by the ESRI make it into the budgetary documentation. There is a sense that a lot of thought goes into this work, but the set of material that appears is quite condensed. There would be a good degree of ex antework at that level.

Historically, the European Commission was one of the biggest generators of ex-anteanalysis. In the era when a great deal of EU money was being spent in Ireland, the EU was very good at demanding that we did ex anteevaluations of moneys that were to be spent. The ESRI worked on these programmes at a sectoral level but also at a macro level. I started at the ESRI in 1994. One of the first studies I worked on was published in 1997. The project was led by Patrick Honohan. We put together figures as part of one of the major evaluations of all EU structural spending in Ireland in the 1990s. There was great discipline in those exercises because they forced Departments and others to think through what the effects would be and whether the sort of expenditure that was being talked about could be justified. I have often thought that one of the unfortunate things about European money drying up, apart from the money going, was that some of this intensive evaluation culture left us. It is still there, but it is not applied as rigorously as it previously was. Others have spoken about this as well.

The Deputy also asked about staff numbers. While I can provide the numbers, this issue is slightly complicated by a particular decision that was taken by Senator Reilly when he was Minister for Health. The ESRI had a significant number of people - between 20 and 25 officials - collecting hospital-related data. The then Minister decided that work would be taken from the ESRI and given to what ultimately became the Healthcare Pricing Office. We lost 25 people, in a sense, at that time. We have been building up ever since. I could give the Deputy figures, but they would not illustrate neatly the underlying situation in the ESRI. I should say the ESRI was not subject to the public sector employment embargo that affected other offices. Its independence meant it could carry on hiring in recent years. Its grants and pay levels were cut and various things happened, but it was not subject to the employment embargo.