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Quantifying the impact of structural reforms

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Author Info

  • Ernst, Ekkehard
  • Gong, Gang
  • Semmler, Willi
  • Bukeviciute, Lina

Abstract

We estimate a dynamic, intertemporal optimisation model 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. JEL Classification: E32, C61

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0666.

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Date of creation: Aug 2006
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Handle: RePEc:ecb:ecbwps:20060666

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Related research

Keywords: business cycles; labour market reforms in OECD countries; nominal and real rigidities; non-clearing labour markets;

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References

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Citations

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Cited by:
  1. de Bandt, O. & Vigna, O., 2008. "The macroeconomic impact of structural reforms," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 11, pages 5-32, Spring.
  2. Bernd Schnatz, 2007. "Is reversion to PPP in euro exchange rates non-linear?," International Economics and Economic Policy, Springer, vol. 4(3), pages 281-297, November.
  3. Babetskii, Ian & Campos, Nauro F, 2007. "Does Reform Work? An Econometric Examination of the Reform-Growth Puzzle," IZA Discussion Papers 2638, Institute for the Study of Labor (IZA).
  4. Mittnik, Stefan & Semmler, Willi, 2012. "Regime dependence of the fiscal multiplier," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 502-522.
  5. Ernst, Ekkehard & Semmler, Willi, 2010. "Global dynamics in a model with search and matching in labor and capital markets," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1651-1679, September.

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