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Output and unemployment dynamics in transition

  • Vivek Dehejia
  • Douglas Dwyer

This paper examines transition dynamics in a search economy. We contrast two extreme cases: a completely unexpected reform and a fully anticipated reform. We show that announcing the reform in advance leads to stagnation in anticipation and output cycles after the implementation, that are more volatile than had a reform of identical magnitude been implemented immediately. However, the more volatile output trajectory of the anticipated case yields a higher PDV of output than an unanticipated reform of equal magnitude. This suggests that an anticipated reform is better than an unanticipated reform, even though the former induces greater volatility.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/1384128042000202379
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Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 7 (2004)
Issue (Month): 2 ()
Pages: 69-81

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Handle: RePEc:taf:jpolrf:v:7:y:2004:i:2:p:69-81
DOI: 10.1080/1384128042000202379
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  1. Vivek Dehejia, 1997. "Optimal Restructuring Under A Political Constraint," Working Papers 39, Sapienza University of Rome, CIDEI.
  2. Dehejia, Vivek, 1997. "Optimal Restructuring Under a Political Constraint: A General Equilibrium Approach," CEPR Discussion Papers 1619, C.E.P.R. Discussion Papers.
  3. Andrew Atkeson & Patrick J. Kehoe, 1993. "Social Insurance and Transition," NBER Working Papers 4411, National Bureau of Economic Research, Inc.
  4. Blanchard, Olivier & Kremer, Michael R., 1997. "Disorganization," Scholarly Articles 3659691, Harvard University Department of Economics.
  5. Mariano Tommasi & Andres Velasco, 1995. "Where Are We in the Political Economy of Reform?," Working Papers 11, Universidad de San Andres, Departamento de Economia, revised Apr 1996.
  6. Andrew Atkeson & Patrick Kehoe, 1997. "Industry Evolution and Transition: A Neoclassical Benchmark," NBER Working Papers 6005, National Bureau of Economic Research, Inc.
  7. Vivek H. Dehejia & Douglas W. Dwyer, 2004. "Output and Unemployment Dynamics in Transition," Carleton Economic Papers 04-08, Carleton University, Department of Economics, revised Jun 2004.
  8. Raouf Boucekkine & Omar Licandro & Christopher Paul, . "Differential-Difference Equations in Economics: On the Numerical Solution of Vintage Capital Growth Models," Computing in Economics and Finance 1996 _036, Society for Computational Economics.
  9. Gomes, Joao & Greenwood, Jeremy & Rebelo, Sergio, 2001. "Equilibrium unemployment," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 109-152, August.
  10. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
  11. King, Robert G & Rebelo, Sergio T, 1993. "Transitional Dynamics and Economic Growth in the Neoclassical Model," American Economic Review, American Economic Association, vol. 83(4), pages 908-31, September.
  12. Castanheira, Micael & Roland, Gérard, 1996. "The Optimal Speed of Transition: A General Equilibrium Analysis," CEPR Discussion Papers 1442, C.E.P.R. Discussion Papers.
  13. Blanchard, Olivier Jean & Aghion, Philippe, 1994. "On the Speed of Transition in Central Europe," Scholarly Articles 4481322, Harvard University Department of Economics.
  14. Boucekkine, Raouf & Germain, Marc & Licandro, Omar, 1997. "Replacement Echoes in the Vintage Capital Growth Model," Journal of Economic Theory, Elsevier, vol. 74(2), pages 333-348, June.
  15. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
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