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Structural reforms at the zero bound

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  • Lukas Vogel

Abstract

This paper uses the European Commission’s QUEST macroeconomic model to analyse the impact of structural reforms on economic activity in an environment in which the zero bound on monetary policy rates is temporarily binding. The simulations suggest that although such reforms can have a negative impact on economic activity in the short run, these effects tend to be small and short-lived when a variety of transmission channels are considered. The results also do not support the idea that postponing structural reforms improves economic conditions, in such and environment.

Suggested Citation

  • Lukas Vogel, 2014. "Structural reforms at the zero bound," European Economy - Economic Papers 2008 - 2015 537, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0537
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    References listed on IDEAS

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    1. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld & Lukas Vogel, 2015. "What drives the German current account? And how does it affect other EU Member States?," Economic Policy, CEPR;CES;MSH, vol. 30(81), pages 47-93.
    2. Agnello, Luca & Castro, Vitor & Jalles, João Tovar & Sousa, Ricardo M., 2015. "What determines the likelihood of structural reforms?," European Journal of Political Economy, Elsevier, vol. 37(C), pages 129-145.
    3. Cacciatore, Matteo & Duval, Romain & Fiori, Giuseppe & Ghironi, Fabio, 2016. "Market reforms in the time of imbalance," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 69-93.
    4. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
    5. Jakob De Haan & Susanna Lundström & Jan-Egbert Sturm, 2006. "Market-oriented institutions and policies and economic growth: A critical survey," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 157-191, April.
    6. repec:eee:moneco:v:88:y:2017:i:c:p:15-34 is not listed on IDEAS
    7. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2005. "Structural Reforms and the Exchange Rate Regime A Panel Analysis for the World versus OECD Countries," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 263/2005, Department of Economics, University of Hohenheim, Germany.
    8. Romain Duval & Jørgen Elmeskov, 2005. "The Effects of EMU on Structural Reforms in Labour and Product Markets," OECD Economics Department Working Papers 438, OECD Publishing.
    9. Compton, Ryan A. & Giedeman, Daniel C. & Hoover, Gary A., 2014. "A distributional analysis of the benefits of economic freedom," European Journal of Political Economy, Elsevier, vol. 33(C), pages 121-133.
    10. Alberto Alesina & Silvia Ardagna & Vincenzo Galasso, 2011. "The Euro and Structural Reforms," Review of Economics and Institutions, Università di Perugia, vol. 2(1).
    11. Vogel, Lukas, 2014. "Nontradable sector reform and external rebalancing in monetary union: A model-based analysis," Economic Modelling, Elsevier, vol. 41(C), pages 421-434.
    12. Sandra Gomes & Pascal Jacquinot & Matthias Mohr & Massimiliano Pisani, 2013. "Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment," International Finance, Wiley Blackwell, vol. 16(1), pages 23-44, February.
    13. Conde-Ruiz, Jose Ignacio & Galasso, Vincenzo, 2005. "Positive arithmetic of the welfare state," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 933-955, June.
    14. Janos Varga & Werner Roeger & Jan in’t Veld, 2014. "Growth effects of structural reforms in Southern Europe: the case of Greece, Italy, Spain and Portugal," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 323-363, May.
    15. Vincenzo Galasso, 2014. "The role of political partisanship during economic crises," Public Choice, Springer, vol. 158(1), pages 143-165, January.
    16. Romain Bouis & Romain Duval, 2011. "Raising Potential Growth After the Crisis: A Quantitative Assessment of the Potential Gains from Various Structural Reforms in the OECD Area and Beyond," OECD Economics Department Working Papers 835, OECD Publishing.
    17. Eggertsson, Gauti & Ferrero, Andrea & Raffo, Andrea, 2014. "Can structural reforms help Europe?," Journal of Monetary Economics, Elsevier, vol. 61(C), pages 2-22.
    18. Duval, Romain, 2008. "Is there a role for macroeconomic policy in fostering structural reforms? Panel evidence from OECD countries over the past two decades," European Journal of Political Economy, Elsevier, vol. 24(2), pages 491-502, June.
    19. Andrés, Javier & Arce, Óscar & Thomas, Carlos, 2017. "Structural reforms in a debt overhang," Journal of Monetary Economics, Elsevier, vol. 88(C), pages 15-34.
    20. Campos, Nauro F. & Horváth, Roman, 2012. "Reform redux: Measurement, determinants and growth implications," European Journal of Political Economy, Elsevier, vol. 28(2), pages 227-237.
    21. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When?The Political Economy of Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1-1.
    22. Ratto, Marco & Roeger, Werner & Veld, Jan in 't, 2009. "QUEST III: An estimated open-economy DSGE model of the euro area with fiscal and monetary policy," Economic Modelling, Elsevier, vol. 26(1), pages 222-233, January.
    23. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When? On the Political Economy of Reforms," NBER Working Papers 12049, National Bureau of Economic Research, Inc.
    24. 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.
    25. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March.
    26. Vogel, Lukas, 2012. "Structural reforms, fiscal consolidation and external rebalancing in monetary union: A model-based analysis," Economic Modelling, Elsevier, vol. 29(4), pages 1286-1298.
    27. Tanzi, Vito & Schuknecht, Ludger, 1997. "Reforming government: An overview of recent experience," European Journal of Political Economy, Elsevier, vol. 13(3), pages 395-417, September.
    28. Romain Bouis & Orsetta Causa & Lilas Demmou & Romain Duval & Aleksandra Zdzienicka, 2012. "The Short-Term Effects of Structural Reforms: An Empirical Analysis," OECD Economics Department Working Papers 949, OECD Publishing.
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    Cited by:

    1. repec:eee:jpolmo:v:40:y:2018:i:6:p:1200-1220 is not listed on IDEAS
    2. Romanos Priftis & Lukas Vogel, 2016. "The Portfolio Balance Mechanism and QE in the Euro Area," Manchester School, University of Manchester, vol. 84(S1), pages 84-105, September.
    3. repec:onb:oenbfi:y:2018:i:q3-18:b:9 is not listed on IDEAS
    4. Cacciatore, Matteo & Duval, Romain & Fiori, Giuseppe & Ghironi, Fabio, 2016. "Market reforms in the time of imbalance," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 69-93.
    5. repec:eee:poleco:v:48:y:2017:i:c:p:54-73 is not listed on IDEAS
    6. Kollmann, Robert & Vogel, Lukas, 2015. "Discussion of ‘Market Reforms in the Time of Imbalance’ (M. Cacciatore, R.Duval, G. Fiori, F. Ghironi)," MPRA Paper 70194, University Library of Munich, Germany.
    7. Dimitris Papageorgiou & Evangelia Vourvachaki, 2015. "The Macroeconomic Impact of Structural Reforms in Product and Labour Markets: Trade-Offs and Complementarities," Working Papers 197, Bank of Greece.
    8. Campagne, Benoît & Poissonnier, Aurélien, 2018. "Structural reforms in DSGE models: Output gains but welfare losses," Economic Modelling, Elsevier, vol. 75(C), pages 397-421.
    9. Kollmann, Robert & Vogel, Lukas, 2016. "Comments on “Market reforms in the time of imbalance” by M. Cacciatore, R. Duval, G. Fiori and F. Ghironi," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 94-97.
    10. repec:eee:jmacro:v:55:y:2018:i:c:p:28-45 is not listed on IDEAS
    11. 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.
    12. Fritz Breuss, 2015. "In Search of Growth in a Future with Diminished Expectations. The Case of Austria," WIFO Working Papers 493, WIFO.

    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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