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Output and unemployment dynamics in transition

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  • Vivek Dehejia
  • Douglas Dwyer

Abstract

This paper examines transition dynamics in a search economy. We contrast two extreme cases: a completely unexpected reform and a fully anticipated reform. We show that announcing the reform in advance leads to stagnation in anticipation and output cycles after the implementation, that are more volatile than had a reform of identical magnitude been implemented immediately. However, the more volatile output trajectory of the anticipated case yields a higher PDV of output than an unanticipated reform of equal magnitude. This suggests that an anticipated reform is better than an unanticipated reform, even though the former induces greater volatility.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 7 (2004)
Issue (Month): 2 ()
Pages: 69-81

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Handle: RePEc:taf:jpolrf:v:7:y:2004:i:2:p:69-81

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Related research

Keywords: Adjustment costs; Industy restructuring; Transition dynamics; Policy reform; JEL Codes: O1; P1;

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References

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  1. Micael Castanheira De Moura & Gérard Roland, 2000. "The optimal speed of transition: a general equilibrium analysis," ULB Institutional Repository 2013/10011, ULB -- Universite Libre de Bruxelles.
  2. Andrew Atkeson & Patrick J. Kehoe, 1993. "Social Insurance and Transition," NBER Working Papers 4411, National Bureau of Economic Research, Inc.
  3. Philippe Aghion & Olivier J. Blanchard, 1994. "On the Speed of Transition in Central Europe," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 283-330 National Bureau of Economic Research, Inc.
  4. Raouf Boucekkine & Marc Germain & Omar Licandro, . "Replacement echoes in the vintage capital growth model," Working Papers 96-16, FEDEA.
  5. Vivek H. Dehejia & Douglas W. Dwyer, 1998. "Output and Unemployment Dynamics in Transition," William Davidson Institute Working Papers Series 178, William Davidson Institute at the University of Michigan.
  6. Joao Gomes & Jeremy Greenwood & Sergio T. Rebelo, 2001. "Equilibrium Unemployment," RCER Working Papers 479, University of Rochester - Center for Economic Research (RCER).
  7. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan.
  8. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
  9. Vivek H. Dehejia, 1997. "Optimal Restructuring Under a Political Constraint: A General Equilibrium Approach," William Davidson Institute Working Papers Series 35, William Davidson Institute at the University of Michigan.
  10. Robert G. King & Sergio T. Rebelo, 1989. "Transitional Dynamics and Economic Growth in the Neoclassical Model," NBER Working Papers 3185, National Bureau of Economic Research, Inc.
  11. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
  12. Boucekkine, Raouf & Licandro, Omar & Paul, Christopher, 1997. "Differential-difference equations in economics: On the numerical solution of vintage capital growth models," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 347-362.
  13. Andrew Atkeson & Patrick Kehoe, 1997. "Industry Evolution and Transition: A Neoclassical Benchmark," NBER Working Papers 6005, National Bureau of Economic Research, Inc.
  14. Mariano Tommasi, 1995. "Where are we in the Political Economy of Reform?," UCLA Economics Working Papers 733, UCLA Department of Economics.
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Cited by:
  1. Vivek H. Dehejia & Douglas W. Dwyer, 2004. "Output and Unemployment Dynamics in Transition," Carleton Economic Papers 04-08, Carleton University, Department of Economics, revised Jun 2004.

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