When Do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies
IMF Working Papers, March 15, 2016
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- When Do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies
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Bibliographic details
- Authors: Anna R Bordon, Christian H Ebeke, Kazuko Shirono
- Published: March 15, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513589923.001
Summary and research question
- Structural reforms are expected to lift growth and employment, but their effects are difficult to identify empirically due to potential endogeneity with the economic environment (for example, reforms implemented shortly before a cyclical upswing are difficult to distinguish from the recovery itself).
- The paper asks how the business cycle and concurrent macroeconomic policies affect the measured impact of labor and product market reforms.
Methodology
- Uses local projection techniques to estimate the impact of labor and product market reforms.
- Controls for endogeneity of reforms and other biases in estimating reform effects.
Key findings
- Labor and product market reforms have a lagged but positive impact on employment creation.
- The positive employment effect remains even after controlling for the endogeneity of the decision to reform.
- Supportive macroeconomic policies 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.
Policy implications and recommendations
- Consider sequencing and macroeconomic context when implementing structural reforms: initiating some reforms alongside supportive fiscal or monetary policy can amplify employment gains.
- Policymakers should account for the lagged nature of reform effects when setting expectations and designing accompanying macroeconomic policies.
Subject coverage and keywords
- 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
Content in this bundle
- 1. Germany: Employment Rate