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Speed of Adjustment to Selected Labour Market and Tax Reforms

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Author Info
Annabelle Mourougane
Lukas Vogel

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Abstract

This paper examines the nature and the length of economic adjustments to selected structural reforms, drawing on a variety of approaches: descriptive analysis and simulations using Dynamic General Equilibrium and macro-economic neo-Keynesian models. The descriptive analysis suggests that the correlation between reforms, including a change in the tax wedge, the replacement ratio or anti-competitive product market regulation and the structural unemployment rate peaks only after 5 to 10 years. Lowering employment and price adjustment costs in the euro area to their respective US levels would only have a relatively limited effect on the speed of adjustment to labour market and tax reforms. Monetary policy reaction can speed up the adjustment to a new equilibrium, though to a varying degree in the different OECD countries or regions. In particular, reforms in individual euro area countries are likely to trigger only little or no policy reaction, unless there is an area-wide effort to implement reforms.

Vitesse d’ajustement à des réformes sur le marché du travail et de la fiscalité
Cet article examine la nature et la durée des ajustements économiques à un certain nombre de réformes structurelles, utilisant plusieurs approches : analyse descriptive et simulations des modèles dynamique d’équilibre général et macro-économiques néo-keynésiens, L’analyse descriptive suggère que la corrélation entre des réformes, notamment une modification du coin fiscal, du taux de remplacement et des régulations anticoncurrentielles sur le marché des produits et le taux de chômage structurel n’atteint son effet maximum qu’après 5 à 10 ans. Diminuer les coûts d’ajustement sur l’emploi et les prix de la zone euro à leur niveau observé aux États-Unis ne se traduirait que par des effets limités sur la vitesse d’ajustements aux réformes sur le marché du travail ou aux réformes fiscales. Une réaction de politique monétaire peut accélérer l’ajustement à un nouvel équilibre, mais de manière plus ou moins marquée dans les différents pays ou régions de l’OCDE. En particulier, les réformes menées au niveau des pays individuels généreront probablement peu ou pas de réaction monétaire, sauf en présence d’un effort concerté de mise en oeuvre de réformes au niveau de la zone.

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Paper provided by OECD, Economics Department in its series OECD Economics Department Working Papers with number 647.

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Date of creation: 28 Oct 2008
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Handle: RePEc:oec:ecoaaa:647-en

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Related research
Keywords: adjustment costs; adjustment speed; DSGE model; euro area; monetary policy; neo-Keynesian models; structural reforms; Taylor rule; United States; coûts d’ajustement; États-Unis; modèle DSGE; modèle néo-keynésiens; politique monétaire; réforme structurelle; règle de Taylor; vitesse d’ajustement; zone Euro;

Find related papers by JEL classification:
C5 - Mathematical and Quantitative Methods - - Econometric Modeling
E00 - Macroeconomics and Monetary Economics - - General - - - General
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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  1. Martin Schindler, 2009. "The Italian Labor Market: Recent Trends, Institutions, and Reform Options," IMF Working Papers 09/47, International Monetary Fund. [Downloadable!]
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