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Measuring the effects of structural reforms in Malta: an analysis using the EAGLE model

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  • Brian Micallef

    (Central Bank of Malta)

Abstract

It is widely recognised that structural reforms are needed to boost long-term growth potential and increase an economy’s flexibility to adjust in the face of shocks. This paper quantifies the macroeconomic effects of structural reforms in services and labour markets using the EAGLE model calibrated for the Maltese economy. EAGLE is a large scale, multi-country dynamic general equilibrium model. The results show that a 10 percentage point reduction in services and labour mark-ups raises GDP by more than 5% in the long-run. The impact of labour market reforms is more pronounced than that of services reform. If implemented in isolation, however, both reforms are associated with adjustment costs. On the contrary, the joint implementation of reforms can soften, to a large extent, the transition costs associated with pursuing the reforms in isolation. An important driver behind these results is the adjustment in the labour market. This calls for policies to reduce mismatches between the demand and supply of skills that are required in today’s industries and to provide incentives so that more people are attracted and retained in the labour market.

Suggested Citation

  • Brian Micallef, 2013. "Measuring the effects of structural reforms in Malta: an analysis using the EAGLE model," CBM Working Papers WP/01/2013, Central Bank of Malta.
  • Handle: RePEc:mlt:wpaper:0113
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    Cited by:

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    2. Juha Kilponen & Massimiliano Pisani & Sebastian Schmidt & Vesna Corbo & Tibor Hledik & Josef Hollmayr & Samuel Hurtado & Paulo Júlio & Dmitry Kulikov & Matthieu Lemoine & Matija Lozej & Henrik Lundval, 2019. "Comparing Fiscal Consolidation Multipliers across Models in Europe," International Journal of Central Banking, International Journal of Central Banking, vol. 15(3), pages 285-320, September.
    3. Vahagn Davtyan & Haykaz Igityan, 2021. "Structural Reforms in DSGE Model," Working Papers 17, Central Bank of the Republic of Armenia.
    4. Noel Rapa, 2016. "MEDSEA : a small open economy DSGE model for Malta," CBM Working Papers WP/05/2016, Central Bank of Malta.
    5. Noel Rapa, 2017. "Estimates of Fiscal Multipliers using MEDSEA," CBM Working Papers WP/04/2017, Central Bank of Malta.
    6. Aaron G. Grech & Brian Micallef & Sandra Zerafa & Tiziana M. Gauci (ed.), 2018. "The Central Bank of Malta’s First Fifty Years: A Solid Foundation for the Future," CBM Ebooks, Central Bank of Malta, edition 1, number 01, December.
    7. Brian Micallef, 2017. "A Sectoral Supply-Side Model to Assess the Impact of Labour Market Reforms in Malta," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(4), pages 105-118, April.

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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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