The burden of austerity should be spread fairly in order to make it more acceptable to the public, according to the Central Bank's Chief Economist Lars Frisell.
Delivering the Paddy Ryan Memorial Lecture at Galway-Mayo Institute of Technology, Mr Frisell said Ireland has so far managed its fiscal consolidation better than most but maintaining balance is vital if this is to continue.
"Psychological resistance [to austerity] will be greater than pure economic impact would suggest," he said.
"It is therefore hard to overstate the importance of social cohesion and a fair distribution of burdens when countries embark on fiscal consolidation."
Mr Frisell, who took up his role in June, said asset bubbles were a feature throughout history but that those based on property were particularly costly, as they bring about a "significant misallocation of resources".
He said using property as collateral in a rising market creates a "feed-back loop" that enables more credit, which in turn enables more investment. When prices fall, this cycle begins to work in reverse, rapidly draining liquidity from the market.
Mr Frisell said he believed society is "eternally doomed to experience cycles of booms and busts" and that central banks and supervisors must have an explicit macro-prudential mandate to deal with this.
He said such institutions were in a position to combine and distil information from across the economy to detect potential imbalances.
Mr Frisell said the task of the Central Bank was to publish such analysis and, where necessary, take action based on it.
