Discussion of ‘Market Reforms in the Time of Imbalance’ (M. Cacciatore, R.Duval, G. Fiori, F. Ghironi).

Kollmann, Robert and Vogel, Lukas (2015): Discussion of ‘Market Reforms in the Time of Imbalance’ (M. Cacciatore, R.Duval, G. Fiori, F. Ghironi). Forthcoming in: Journal of Economic Dynamics and Control (2016)

Abstract

To raise employment and output growth in Europe, the leading multilateral economic institutions (EU Commission, IMF, OECD) routinely recommend ‘structural reforms’ of product and labor markets that increase competition and employment flexibility. Existing model-based analyses of those reforms generally use standard New Keynesian dynamic stochastic general equilibrium (DSGE) models in which pro-competition reforms are represented as exogenous reductions in markups (see, e.g., Everaert and Schule (2008), Roeger et al. (2008), Gomes et al. (2014) and Kollmann et al. (2015)). The Cacciatore, Duval, Fiori and Ghironi paper greatly improves the toolbox for modeling structural reforms in a DSGE framework, by allowing for richer and more realistic firm dynamics and labor market frictions than conventional policy models. This enables the paper to highlight important transmission channels of reforms that are ignored by conventional models. Cacciatore, Duval, Fiori and Ghironi provide a very valuable contribution that highlights the role of firm entry and exit and of labor market frictions for the macroeconomic effects of structural reforms. Their work also suggests promising avenues for future research.

• Item Type: MPRA Paper
• Language: English
• Keywords: Structural reforms, firm dynamics, labor market frictions, current account, household heterogeneity, nominal rigidities
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; F - International Economics > F2 - International Factor Movements and International Business; F - International Economics > F3 - International Finance; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; F - International Economics > F6 - Economic Impacts of Globalization; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance; L - Industrial Organization > L4 - Antitrust Issues and Policies

References

Acemoglu, Daron and Robert Shimer, 1999. Efficient Unemployment Insurance. Journal of Political Economy 107, 893-928.

Babecky, Jan and Tomas Havranek, 2014. Structural Reforms and Growth in Transition: a Meta-Analysis. Economics of Transition 22, 13–42.

Bouis, Romain, Orsetta Causa, Lilas Demmou, Romain Duval and Aleksandra Zdzinicka, 2012a. The Short Term Effects of Structural Reforms: An Empirical Analysis. OECD Economics Department Working Paper 949.

Drazen, Alan, 2002. Political Economy in Macroeconomics, Princeton, NJ: Princeton University Press.

Eggertsson, Gauti, Andrea Ferrero and Andrea Raffo, 2014. Can Structural Reforms Help Europe? Journal of Monetary Economics 61, 2-22.

Everaert, Luc and Werner Schule, 2008. Why It Pays to Synchronize Structural Reforms in the Euro Area Across Markets and Countries. IMF Staff Papers 55, 356-366.

Gomes, Sandra, Pascal Jacquinot, Matthias Mohr and Massimiliano Pisani, 2013. Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model‐Based Assessment. International Finance 16, 23-44.

Kollmann, Robert, Marco Ratto, Werner Roeger, Jan in’t Veld and Lukas Vogel, 2015. What Drives the German Current Account? And How Does it Affect Other EU Member States? Economic Policy 40, 47-93.

McAdam, Peter and Livio Stracca, 2015. Structural Reforms For Inclusive Growth? Empirical Evidence from the OECD. European Central Bank, mimeo.

Roeger, Werner, Janos Varga and Jan in’t Veld, 2008. Structural Reforms in the EU: A Simulation-Based Analysis Using the QUEST Model with Endogenous Growth. European Commission, Economic Papers 351.

Vogel, Lukas, 2014. Structural reforms at the Zero Bound. European Commission, Economic Papers 537.