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

Anna Bordon, Christian Hubert Ebeke (cebeke@imf.org) and Kazuko Shirono

No 2016/062, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; fiscal policy; monetary policy; product market reform; reform; Structural reforms; employment; reform shock; monetary policy stance; output gap; OECD indicator; employment protection legislation reform; Employment rate; Labor market reforms; Commodity markets; Europe; Global (search for similar items in EconPapers)
Pages: 28
Date: 2016-03-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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