Speed of Adjustment to Selected Labour Market and Tax Reforms

Annabelle Mourougane and Lukas Vogel

Comparative Economic Studies, 2009, vol. 51, issue 4, 500-519

Abstract: This paper examines the length of economic adjustments to selected structural reforms, drawing on simulations with dynamic general equilibrium and macro-economic neo-Keynesian models. Employment adjustment costs appear to have only a limited effect on the pace of adjustment to reforms and the influence of price adjustment costs on output dynamics is found to be marginal. Accommodative monetary policy can speed up the adjustment to a new equilibrium, though to a varying degree in the different OECD countries or regions. In particular, reforms in individual euro area countries are likely to trigger only little or no policy reaction, unless there is an area-wide effort to implement structural reforms.

Date: 2009
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