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Structural reforms at the zero lower bound


  • Lukas Vogel


This section discusses the impact of structural reforms on economic activity in the short term in a macroeconomic environment in which the zero bound on monetary policy rates is temporarily binding, ruling out further standard monetary expansion to accommodate supply-side policies. Comparing recent academic contributions that portray structural reforms as counter-productive at the current juncture with QUEST model results suggests that the short-term output effects of reforms can be negative because of the real interest rate effect. However, negative effects are small in a model environment such as QUEST that incorporates a larger number of transmission channels. Short-term effects also depend on the specific reform measures. QUEST results, furthermore, do not support the idea that delaying structural reforms for the foreseeable future would improve economic conditions at the zero bound. The policy implications are that warnings of adverse effects from structural reforms at the current juncture appear to overemphasise potential short-term costs and that postponing reforms is not a good alternative.

Suggested Citation

  • Lukas Vogel, 2014. "Structural reforms at the zero lower bound," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 13(3), pages 21-26, October.
  • Handle: RePEc:euf:qreuro:0133-02

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    Cited by:

    1. Doménech, Rafael & García, Juan Ramón & Ulloa, Camilo, 2018. "The effects of wage flexibility on activity and employment in Spain," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1200-1220.
    2. Kurt Bayer & Andreas Breitenfellner, 2018. "What is the appropriate role of structural reforms in E(M)U deepening?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3-18, pages 102-112.
    3. Kurt Bayer, 2018. "Which Structural Reforms Does E(M)U Need to Function Properly?," wiiw Policy Notes 28, The Vienna Institute for International Economic Studies, wiiw.
    4. Sajedi, Rana & Steinbach, Armin, 2019. "Fiscal rules and structural reforms," International Review of Law and Economics, Elsevier, vol. 58(C), pages 34-42.
    5. Papageorgiou, Dimitris & Vourvachaki, Evangelia, 2017. "Macroeconomic effects of structural reforms and fiscal consolidations: Trade-offs and complementarities," European Journal of Political Economy, Elsevier, vol. 48(C), pages 54-73.

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    structural reforms; zero lower bound;


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