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Quantifying the impact of structural reforms

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Author Info
Ekkehard Ernst () (Corresponding author: OECD, Economics Department, 2, Rue André Pascal, 75775 Paris Cedex 16, France.)
Gang Gong () (School of Economics and Management, Tsinghua University, Beijing 100084, China.)
Willi Semmler () (New School and SCEPA, New York, and CEM, Bielefeld University. Contacts: The New School for Social Research, 65 Fifth Avenue, New York, NY 10003, USA.)
Lina Bukeviciute () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)

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Abstract

We estimate a dynamic intertemporal model with non-clearing markets that mimics features of European labour markets, such as sticky nominal wages and sluggish adjustment of employment to shocks for 15 OECD countries. The estimates include a measure for the degree of labour market sluggishness that compares well with standard indicators of product and labour market regulation. Calibration of the model on a selected country sample confirms its explanatory power in comparison with the standard competitive markets model. In a second step, the measure for labour market sluggishness is used as a policy variable and model variants are simulated in order to assess the extent to which the countries would have performed better with more flexible labour markets. These policy experiments show that an increase in labour market flexibility reduces the volatility of consumption relative to production, improves intertemporal efficiency but entails higher employment risk for households. JEL Classification: E32, C61.

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Paper provided by European Central Bank in its series Working Paper Series with number 666.

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Length: 39 pages
Date of creation: Aug 2006
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Handle: RePEc:ecb:ecbwps:20060666

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Related research
Keywords: Nominal and real rigidities; non-clearing labour markets; business cycles; labour market reforms in OECD countries.;

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Babetskii, Ian & Campos, Nauro F, 2007. "Does Reform Work? An Econometric Examination of the Reform-Growth Puzzle," CEPR Discussion Papers 6215, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Bernd Schnatz, 2006. "Is reversion to PPP in euro exchange rates non-linear?," Working Paper Series 682, European Central Bank. [Downloadable!]
    Other versions:
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