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Economic resilience to shocks: The role of structural policies

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  • Romain Duval
  • Lukas Vogel

Abstract

Cyclical fluctuations in economic activity have moderated over time but the extent and dynamics of volatility remain different across OECD countries. A reason behind this heterogeneity is that countries exhibit different degrees of resilience in the face of common shocks. This paper traces divergences in resilience back to different policy settings and institutions in labour, product and financial markets. Using pooled regression analysis across 20 OECD countries over the period 1982-2003, the paper identifies the impact of policy settings on two dimensions of resilience: the impact effect of a shock and its subsequent persistence. Policies and institutions associated with rigidities in labour and product markets are found to dampen the initial impact of shocks but to make their effects more persistent, while policies allowing for deep mortgage markets lower persistence and thereby improve resilience. Combining these two dimensions of resilience, the paper then uses the estimated equations to derive indicators of resilience for the OECD countries concerned, based on their current or recent policy settings. Three groups of countries emerge. In English-speaking countries, simulations suggest shocks have a significant initial effect on activity but this impact then dies out relatively quickly. By contrast, in many continental European countries the initial impact of shocks is cushioned but their effect linger for longer, with the cumulated output loss tending to be larger than in English-speaking countries. Finally a few, mostly small, European countries combine cushioning of the initial shock with a fairly quick return to baseline.

Suggested Citation

  • Romain Duval & Lukas Vogel, 2008. "Economic resilience to shocks: The role of structural policies," OECD Journal: Economic Studies, OECD Publishing, vol. 2008(1), pages 1-38.
  • Handle: RePEc:oec:ecokac:5kzhdcddnnvk
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    File URL: http://dx.doi.org/10.1787/eco_studies-v2008-art6-en
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    References listed on IDEAS

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    Cited by:

    1. Andreas Sachs, 2013. "Governance Structures in Europe," WWWforEurope Deliverables series 2, WWWforEurope.
    2. repec:bla:presci:v:96:y:2017:i:1:p:3-12 is not listed on IDEAS
    3. Douglas Sutherland & Peter Hoeller, 2014. "Growth Policies and Macroeconomic Stability," OECD Economic Policy Papers 8, OECD Publishing.
    4. repec:eee:poleco:v:48:y:2017:i:c:p:74-90 is not listed on IDEAS
    5. A D Adom, 2016. "Resilience of developing countries to shocks: Case study of WAEMU countries with SUR and VAR Approaches," Economic Issues Journal Articles, Economic Issues, vol. 21(2), pages 105-138, September.
    6. Sondermann, David, 2016. "Towards more resilient economies: the role of well-functioning economic structures," Working Paper Series 1984, European Central Bank.
    7. Annarelli, Alessandro & Nonino, Fabio, 2016. "Strategic and operational management of organizational resilience: Current state of research and future directions," Omega, Elsevier, vol. 62(C), pages 1-18.
    8. Rudiger Ahrend & Cyrille Schwellnus, 2012. "International Capital Mobility and Financial Fragility - Part 4. Which Structural Policies Stabilise Capital Flows When Investors Suddenly Change Their Mind?: Evidence from Bilateral Bank Data," OECD Economics Department Working Papers 967, OECD Publishing.
    9. Sajedi, Rana, 2016. "Fiscal consequences of structural reform under constrained monetary policy," Bank of England working papers 620, Bank of England.
    10. Georgiadis, Georgios, 2015. "Examining asymmetries in the transmission of monetary policy in the euro area: Evidence from a mixed cross-section global VAR model," European Economic Review, Elsevier, vol. 75(C), pages 195-215.
    11. repec:spr:manint:v:51:y:2011:i:6:d:10.1007_s11575-011-0104-1 is not listed on IDEAS
    12. Bas van Aarle, 2013. "Surveillance and Control of Fiscal Consolidation on a Supranational Level," WWWforEurope Working Papers series 46, WWWforEurope.
    13. Vogel, Lukas, 2017. "Structural reforms at the zero bound," European Journal of Political Economy, Elsevier, vol. 48(C), pages 74-90.
    14. Aida Caldera Sánchez & Oliver Röhn, 2016. "How do policies influence GDP tail risks?," OECD Economics Department Working Papers 1339, OECD Publishing.

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