Structural reforms, animal spirits and monetary policies
Paul De Grauwe and
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
We use a New Keynesian behavioral macroeconomic model to analyze how structural reforms affect the economy. There are two types of structural reforms. The first one increases price flexibility; the second one increases competition in the labor market and raises potential output. We find that in a rigid economy business cycle movements are dominated by movements of animal spirits. Increasing price flexibility reduces the power of animal spirits and the boom bust nature of the business cycle. We study the trade-offs between output and inflation volatility faced by the central bank. We find that flexibility improves these trade-offs making it easier for the central bank to stabilize output and inflation.
Keywords: animal spirits; behavioral macroeconomics; business cycles; structural reforms; price flexibity; labour market; product market; ES/P000274/1 (search for similar items in EconPapers)
JEL-codes: E10 E12 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Published in European Economic Review, 1, May, 2020, 124. ISSN: 0014-2921
Downloads: (external link)
http://eprints.lse.ac.uk/103502/ Open access version. (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:103502
Access Statistics for this paper
More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().