When Do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies

By Anna R Bordon, Christian H Ebeke, Kazuko Shirono

March 15, 2016

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Format: Chicago

Anna R Bordon, Christian H Ebeke, and Kazuko Shirono. When Do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies, (USA: International Monetary Fund, 2016) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Structural reforms are expected to lift growth and employment, but their effects are surprisingly difficult to pin down empirically. One reason is their potential endogeneity to the economic environment in which they are conducted. For example, the impact of a reform implemented shortly before a cyclical upswing is difficult to distinguish from the recovery itself. Similarly, macroeconomic policies conducted along a structural reform could affect the estimated impact. Exploring various options, this paper develops robust estimates of the impact of labor and product market reforms by using local projection techniques while controlling for endogeneity of reforms and other biases. The results suggest that labor and product market reforms have a lagged but positive impact on employment creation, and the positive effect remains even after controlling for the endogeneity of the decision to reform. Supportive macroeconomic policies are found to increase the effect of labor and product market reforms, consistent with the view that some structural reforms are best initiated in conjunction with supportive fiscal or monetary policy.

Subject: Commodity markets, Employment, Employment rate, Financial markets, Labor, Labor market reforms, Macrostructural analysis, Structural reforms

Keywords: Commodity markets, Employment, Employment protection legislation reform, Employment rate, Europe, Fiscal policy, Global, Labor market reforms, Monetary policy, Monetary policy stance, OECD indicator, Output gap, Product market reform, Reform, Reform shock, Structural reforms, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/062
Stock No:

WPIEA2016062
ISBN:

9781513589923
ISSN:

1018-5941

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