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Quantifying the impact of structural reforms

Author

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  • Ernst, Ekkehard
  • Gong, Gang
  • Semmler, Willi
  • Bukeviciute, Lina

Abstract

We estimate a dynamic, inter-temporal optimisation model that mimics features of European labour markets, such as sticky nominal wages and sluggish adjustment of employment to shocks for 15 OECD countries. The estimates include a measure for the degree of labour market sluggishness that compares well with standard indicators of product and labour market regulation. Calibration of the model on a selected country sample confirms its explanatory power in comparison with the standard competitive markets model. In a second step, the measure for labour market sluggishness is used as a policy variable and model variants are simulated in order to assess the extent to which the countries would have performed better with more flexible labour markets. These policy experiments show that an increase in labour market flexibility reduces the volatility of consumption relative to production, improves inter-temporal efficiency but entails higher employment risk. JEL Classification: E32, C61

Suggested Citation

  • Ernst, Ekkehard & Gong, Gang & Semmler, Willi & Bukeviciute, Lina, 2006. "Quantifying the impact of structural reforms," Working Paper Series 666, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2006666
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mittnik, Stefan & Semmler, Willi, 2012. "Regime dependence of the fiscal multiplier," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 502-522.
    2. Ian Babetskii & Nauro Campos, 2006. "Does Reform Work? An Econometric Examination of the Reform-Growth Puzzle," William Davidson Institute Working Papers Series wp870, William Davidson Institute at the University of Michigan.
    3. Schnatz, Bernd, 2006. "Is reversion to PPP in euro exchange rates non-linear?," Working Paper Series 682, European Central Bank.
    4. de Bandt, O. & Vigna, O., 2008. "The macroeconomic impact of structural reforms," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 11, pages 5-32, Spring.
    5. Annabelle Mourougane & Lukas Vogel, 2009. "Speed of Adjustment to Selected Labour Market and Tax Reforms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 51(4), pages 500-519, December.
    6. Ernst, Ekkehard & Semmler, Willi, 2010. "Global dynamics in a model with search and matching in labor and capital markets," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1651-1679, September.

    More about this item

    Keywords

    business cycles; labour market reforms in OECD countries; nominal and real rigidities; non-clearing labour markets;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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