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Euro area structural reforms in times of a global crisis

Sandra Gomes ()

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: The global financial crisis that started in mid-2007 brought back to the monetary policy debate the issue of the zero lower bound on nominal interest rates and the policy options available when this is a binding constraint. Given the significative macroeconomic impact of the crisis it has also brought to the forefront of the discussion ways to revive economic growth. This paper looks at structural reforms as a policy option of economic stimulus for an economy where the zero lower bound binds. We focus in the euro area economy. Our main results show that structural reforms may have positive short run effects that reduce the size of a recession and if coordinated they can drive the euro area out of the zero lower bound. We also show that the short to medium run impact of structural reforms is also crucially dependent on the design of such reforms, namely if the reforms are implemented gradually or not and if the reforms are announced (or perceived) as temporary or permanent. Finally, we show that the zero lower bound does not change significantly the impact of the reforms if the reform is permanent but it does have an important effect if the reform is transitory.

JEL-codes: E52 F42 F47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

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