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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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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
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  1. Castanheira, Micael & Roland, Gerard, 2000. "The Optimal Speed of Transition: A General Equilibrium Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 219-39, February.
  2. Vivek Dehejia & Douglas Dwyer, 2004. "Output and unemployment dynamics in transition," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 7(2), pages 69-81.
  3. Robert G. King & Sergio T. Rebelo, 1989. "Transitional Dynamics and Economic Growth in the Neoclassical Model," NBER Working Papers 3185, National Bureau of Economic Research, Inc.
  4. Mariano Tommasi & Andres Velasco, 1996. "Where are we in the political economy of reform?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 187-238.
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  6. Blanchard, Olivier Jean & Aghion, Philippe, 1994. "On the Speed of Transition in Central Europe," Scholarly Articles 4481322, Harvard University Department of Economics.
  7. Andrew Atkeson & Patrick Kehoe, 1997. "Industry Evolution and Transition: A Neoclassical Benchmark," NBER Working Papers 6005, National Bureau of Economic Research, Inc.
  8. Blanchard, Olivier & Kremer, Michael R., 1997. "Disorganization," Scholarly Articles 3659691, Harvard University Department of Economics.
  9. Andrew Atkeson & Patrick J. Kehoe, 1995. "Social insurance and transition," Staff Report 202, Federal Reserve Bank of Minneapolis.
  10. 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.
  11. Gomes, Joao F & Greenwood, Jeremy & Rebelo, Sérgio, 1997. "Equilibrium Unemployment," CEPR Discussion Papers 1602, C.E.P.R. Discussion Papers.
  12. Dehejia, Vivek, 1997. "Optimal Restructuring Under a Political Constraint: A General Equilibrium Approach," CEPR Discussion Papers 1619, C.E.P.R. Discussion Papers.
  13. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
  14. 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.
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