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Measuring the effects of structural reforms in Malta

Author

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  • Brian MICALLEF

    (Research Department, Central Bank of Malta, Malta)

Abstract

tructural reforms are crucial to boost an economy’s long-term growth potential, enhance its resilienceand increase its flexibility to adjust to adverseshocks. Malta has implemented a number of reforms in recent years, both to its labour and product market, which could in part explain its stellar growth performance after the crisis. Furthermore, EU membership has facilitated the inflow of foreign labour that helped to address critical labour and skill shortages. This paper quantifies the macroeconomic effects of structural reforms in labour and product markets using EAGLE, a large scale multi-country DSGE model, calibrated for the Maltese economy, as a small and open economy in a monetary union. The results show that a 10 percentage point reduction in product and labour mark-ups raises GDP by more than 5% in the long-run. The implementation of the reforms in isolation is associated with adjustment costs but the jointimplementation of reforms can, to a large extent, soften the transition costs associated with the reforms. The results are robust to varying levels of mark-ups and different parameterization of the model. A key driver behind this finding is the adjustment in the labour market. This calls for policies to further reduce skill mismatches and for incentives that attract and retain more people in the labour market

Suggested Citation

  • Brian MICALLEF, 2019. "Measuring the effects of structural reforms in Malta," Journal of Economics and Political Economy, EconSciences Journals, vol. 6(4), pages 344-367, December.
    • Handle: RePEc:cvv:journ1:v:6:y:2019:i:4:p:344-367
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    References listed on IDEAS

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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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