Structural Policies and Economic Resilience to Shocks

52 Pages Posted: 24 Jul 2007

See all articles by Romain Duval

Romain Duval

Organization for Economic Co-Operation and Development (OECD)

Jörgen Elmeskov

Organization for Economic Co-Operation and Development (OECD) - Policy Studies Branch

Lukas Vogel

European Union - European Commission

Date Written: July 16, 2007

Abstract

Cyclical fluctuations in economic activity have moderated over time but the extent and dynamics of volatility remain different across OECD countries. A reason behind this heterogeneity is that countries exhibit different degrees of resilience in the face of common shocks. This paper traces divergences in resilience back to different policy settings and institutions in labour, product and financial markets. Using pooled regression analysis across 20 OECD countries over the period 1982-2003, the paper identifies the impact of policy settings on two dimensions of resilience: the impact effect of a shock and its subsequent persistence. Policies and institutions associated with rigidities in labour and product markets are found to dampen the initial impact of shocks but to make their effects more persistent, while policies allowing for deep mortgage markets lower persistence and thereby improve resilience. Combining these two dimensions of resilience, the paper then uses the estimated equations to derive indicators of resilience for the OECD countries concerned, based on their current or recent policy settings. Three groups of countries emerge. In English-speaking countries, simulations suggest shocks have a significant initial effect on activity but this impact then dies out relatively quickly. By contrast, in many continental European countries the initial impact of shocks is cushioned but their effect linger for longer, with the cumulated output loss tending to be larger than in English-speaking countries. Finally a few, mostly small, European countries combine cushioning of the initial shock with a fairly quick return to baseline.

Keywords: Resilience, output gap, cycles, institutions

JEL Classification: E32, O43

Suggested Citation

Duval, Romain and Elmeskov, Jörgen and Vogel, Lukas, Structural Policies and Economic Resilience to Shocks (July 16, 2007). OECD Working Paper No. 567. Available at SSRN: https://ssrn.com/abstract=1002508 or http://dx.doi.org/10.2139/ssrn.1002508

Romain Duval (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Jörgen Elmeskov

Organization for Economic Co-Operation and Development (OECD) - Policy Studies Branch ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

Lukas Vogel

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Register to save articles to
your library

Register

Paper statistics

Downloads
492
Abstract Views
2,316
rank
57,080
PlumX Metrics