be thought of as a symptom of being small, open or having a strong reliance on certain sectors. the historic volatility of the irish macro - financial environment is perhaps the most visible representation of being small, open and highly globalised. recent central bank research has looked at the cross - country volatility or unpredictability of a range of macro economic financial variables since 1980. 22 relative to its european peers, ireland ’ s macro variables move more, or in other words, have higher highs and lower lows. credit and house prices display the largest divergence to our european neighbours, and with the recent credit boom and house price peaks and troughs this is perhaps no surprise. however gdp, household income, and employment also move more relative to european countries. * * * as evidenced by our volatility, the irish economy has vulnerabilities, these can be cyclical or structural. i will first briefly look at cyclical sensitivities, before speaking in more detail on structural ones. cyclical can be how responsive the irish economy is to the global economic cycle. depending whether the global economy is performing strongly or weakly, how much does this affect ireland. central bank research compares the effect of a global output shock on ireland, the us, uk and euro area. 23 of those large economies studied, over time, ireland is the most affected by, or the most responsive to, a negative global shock. looking further within a subset of small open economies, ireland is less negatively affected than singapore or sweden, but more affected than switzerland and new zealand for example. today, the responsiveness to the global economy is particularly relevant with weakening global growth prospects and subdued global final demand. * * * turning now to structural vulnerabilities. these are features of the irish economy that would mean it is more susceptible to idiosyncratic structural shocks that may have significant macroeconomic effects. one way of looking at the propensity for structural shocks of the irish economy is to compare how much actual economic performance is different to previous forecasts through time. in other words, how hard it is to anticipate future performance from current information. the bigger the differences the harder it can be for businesses and households to prepare for the future. it is illustrative to see how we compare with other countries. the forecast errors for ireland are at the higher end of the scale when comparing across eu member states. 24 in fact, ireland has the highest forecast errors

me turn to financial stability, a core aspect of our mandate at the central bank of ireland, and an area where co - operation and integration with our european and international partners is crucial. the financial system is international, interconnected, and interdependent. it is only by engaging and working together across borders that policymakers can ensure it remains stable and absorbs, rather than amplifies shocks and so, operates in the best interests of consumers and the wider economy. as europe has changed over recent decades, so too has the financial system, notably, with a larger share now operating outside the traditional banking sector. following the financial crisis, for me, the overarching lesson is that do not want to find ourselves in some, suboptimal, ‘ halfway house. ’ one of the key initial responses to the last crisis was to introduce the european system of financial supervision ( esfs ). the main task of the esfs is to ensure consistent and appropriate financial supervision throughout the eu. as the european commission outlined in 2009, the system of solely national supervision “ lagged behind the integrated and interconnect reality of … european financial markets, in which many firms operate across borders. ” 9 the esfs consists of a collaborative network centred around the three european supervisory authorities ( the european banking authority, the european insurance and occupational pensions authority and the european securities and markets authority ), the european systemic risk board and national supervisors. https : / / www. centralbank. ie / news / article / speech - irelands - engagement - in - europe - 1 - oct - 20 2 / 5 02 / 10 / 2020 ireland ’ s engagement in europe and deeper integration of europe - deputy governor sharon donnery from these beginnings, later steps were taken to implement a banking union, which is particularly important in a monetary union as problems in other countries can quickly spill over borders. while we have made progress towards a functioning banking union, with the introduction of cross - border supervision through the single supervisory mechanism and rules for managing failing banks through the single resolution mechanism, it is not yet complete. a key outstanding issue includes the lack of a common system for deposit protection. this is important as within the euro area, depositors in a country hit by a crisis may worry they are not protected to the same extent as depositors in other member states, incentivising them to move funds abroad. this could amplify shocks to our economies and banking systems. to this backdrop, and on