We calibrate both models to Ireland, the rest of the euro area (REA), the rest of the world (RW) and the US. First, we use the some standard values from the literature, but where available, we augment these with the empirical estimates. These are mostly based on the estimates for the euro area in Christoffel et al. (2008), and the values used in Gomes et al. (2012). Second, in addition to these standard values from the literature, we account for the fact that the neutral rate has followed a downward trend throughout and therefore adjust its level to be 1% in the steady state (as in Gomes et al. (2023)). Finally, we update the trade matrix to account for the fact that trade flows have increased markedly from the levels before the Great Financial Crisis, and to account for the increased role of the global value chains, we also target the empirical levels of import-content of exports for all blocs in the model. Below we report the full set of values used in the calibration (please see A for the equations that correspond to the reported parameters).

Table 1 reports parameters used to calibrate utility and production functions. Parameters governing the utility function and intermediate goods production are mostly standard values from the literature. The productivity of public capital, αG, was calibrated to be a conservative estimate from the literature (in the lower end of the range considered by Leeper et al. (2010), and lower than the estimates in Bom and Ligthart (2014), as Ireland is a developed economy and additional investment in infrastructure would likely be less productive than investment in infrastructure in countries where infrastructure is missing). Note also that the value of this parameter captures the average productivity of public investment, and there are arguably types of public investment that are more productive than the others. In such settings, the composition of public investment bundle matters. Our choice of relatively conservative value for this parameter can also be viewed as reflecting the view that most productive types of public investment have been made first, and that the additional public investment - while still productive - is less productive that past public investment.8

Values for the calibration of final consumption good firms, final investment good firms, and re-exported goods are obtained as follows. First, the substitution elasticities are based on the values used in similar models (Christoffel et al. (2008), Gomes et al. (2012), and Clancy et al. (2016)). Second, the shares of goods are obtained by matching the openness of all blocs in terms of bilateral imports and import content of exports, with targets reported in Tables 2 and 3. In addition, net foreign assets are calibrated such that they match the trade balance. For the euro area, we assume a roughly balanced trade balance, for the US a 5% deficit, for Ireland, we target about 15% surplus in the steady state. The latter is a difficult statistic to match, as trade balance has fluctuated between almost zero and as much as 40% in recent years (2000-2024). To obtain a reasonable number that is approximately in line with the trade balance to GNI* ratio over the recent years, we opt for the relatively large surplus. Note, however, that due to large foreign direct investment to Ireland, the large negative value of net foreign assets and the corresponding need for a large trade surplus are not unexpected. A similar issue as with the trade balance is with the level of imports and exports, which often exceed GDP. Since 2000, Irish imports have fluctuated between 65% and 124% of GDP. We have opted for the calibration that targets Irish import-to-GDP ratio of about 75%,