Structural Reforms in a Monetary Union: The Role of the ZLB
AbstractStructural reforms that increase competition in product and labor markets may have large effects on the long-run level of output. We find that, in a medium scale DSGE model, a 10 percent reduction in product and labor markups increases output by nearly 7 percent after 5 years. The short-run transmission of these reforms, however, depends critically on the presence of the zero lower bound (ZLB). When monetary policy is at the ZLB, structural reforms may have perverse effects, as they increase deflationary pressures and delay the normalization of policy rates. Hence, contrary to conventional wisdom, we argue that labor market reforms should precede product market reforms.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 637.
Date of creation: 2013
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
- NEP-DGE-2013-12-29 (Dynamic General Equilibrium)
- NEP-MAC-2013-12-29 (Macroeconomics)
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