When Do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies

29 Pages Posted: 26 Apr 2016

See all articles by Anna R. Bordon

Anna R. Bordon

International Monetary Fund (IMF)

Christian Ebeke

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS

Kazuko Shirono

International Monetary Fund (IMF)

Date Written: March 2016

Abstract

Structural reforms are expected to lift growth and employment, but their effects are surprisingly difficult to pin down empirically. One reason is their potential endogeneity to the economic environment in which they are conducted. For example, the impact of a reform implemented shortly before a cyclical upswing is difficult to distinguish from the recovery itself. Similarly, macroeconomic policies conducted along a structural reform could affect the estimated impact. Exploring various options, this paper develops robust estimates of the impact of labor and product market reforms by using local projection techniques while controlling for endogeneity of reforms and other biases. The results suggest that labor and product market reforms have a lagged but positive impact on employment creation, and the positive effect remains even after controlling for the endogeneity of the decision to reform. Supportive macroeconomic policies are found to increase the effect of labor and product market reforms, consistent with the view that some structural reforms are best initiated in conjunction with supportive fiscal or monetary policy.

Keywords: Structural reforms, employment, monetary policy, fiscal policy, product market, labor market, labor, employment rate, General, All Countries,

JEL Classification: E24, E50, E62

Suggested Citation

Bordon, Anna R. and Ebeke, Christian and Shirono, Kazuko, When Do Structural Reforms Work? On the Role of the Business Cycle and Macroeconomic Policies (March 2016). IMF Working Paper No. 16/62, Available at SSRN: https://ssrn.com/abstract=2770296

Anna R. Bordon (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Christian Ebeke

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

Kazuko Shirono

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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