POLICY PAPER: FINANCIAL SECTOR POLICY - Saving to Invest? Financial Intermediation in Ireland Since the GFC

Abstract

Financial intermediation is the process through which savings are channelled into investment. This article studies developments in both sides of this process in Ireland, beginning by studying the savings behaviour of Irish households and the allocation of this wealth across assets. We show that households with the most financial resources are more likely to save and at higher rates, leading them to accumulate larger stocks of assets, which have benefitted most from asset price gains in recent years. We then study the usage of external finance for investment in Ireland, focussing on indigenous businesses. We find that despite their low investment rates in aggregate, a lack of access to finance is rarely a barrier to growth cited by indigenous Irish firms. We finish the paper by discussing the mechanisms that exist to connect household wealth to productive investment in the case of a small and highly-globalised economy such as Ireland, drawing out a range of policy conclusions.