Who Dares, Wins: Labor Market Reforms and Sovereign Yields

June 28, 2017

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Format: Chicago

Christian H Ebeke. Who Dares, Wins: Labor Market Reforms and Sovereign Yields, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The paper shows that investors value the adoption of structural reforms by lending at lower cost. The reform-induced reduction of long-term yields is bigger when reforms are initiated in good times and in countries facing high borrowing costs. Importantly, there is no statistical evidence that markets systematically punish countries that launch reforms concomitantly with fiscal stimulus. The paper also finds that the social context matters: structural reforms lead to a short-lived overshooting of yields when followed by strikes or lockouts. Controlling for endogeneity issues does not reject the central finding of the paper. These results are economically plausible and confirmed even after using sovereign credit ratings as an alternative dependent variable. These results have two main implications: (i) on average, labor market reforms lower borrowing costs; and (ii) country-specific circumstances also play a role.

Subject: Banking crises, Bond yields, Employment protection, Financial crises, Financial institutions, Labor, Macrostructural analysis, Output gap, Production, Structural reforms

Keywords: Banking crises, Bond yields, Control group, Country outlook, Dependent variable, Employment protection, Global, Institutions, Long-term bond yields, Long-term yield, Output gap, Reforming country, Structural reforms, WP, Yield, Yield country

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/141
Stock No:

WPIEA2017141
ISBN:

9781475595857
ISSN:

1018-5941

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