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Maroje Lang, CNB

Comments on Mourougane and Vogel's The Impact of Selected Structural Reforms : Speed of Adjustment and Distributional Effects. Maroje Lang, CNB. Reform delay and fatigue. Consensus about positive (long-term) effects of structural reforms

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Maroje Lang, CNB

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  1. Comments on Mourougane and Vogel'sThe Impact of Selected Structural Reforms:Speed of Adjustment and Distributional Effects Maroje Lang, CNB

  2. Reform delay and fatigue • Consensus about positive (long-term) effects of structural reforms • However, structural reforms often delayed or stopped Why ?

  3. Motivation(authors try to answer the following): • why reforms are delayed: adjustment path is important for political economy reasons (short term costs vs. long-term benefits) • why reforms work in some countries: how institutions (rigidities in labor and product markets and characteristics of financial markets (including monetary policy)) affect the pace of adjustment to selected reforms • how to deal with opposition to reform: analyse the distributional effects and offer solutions

  4. Methods used • descriptive analysis - illustrate the actual data on impact of reforms • simulations using two types of models: small macroeconomic neo-Keynesian model and micro founded DSGE model • to illustrate problem and show robustness • the right approach for the OECD study/working paper • some methods are self-contained – can be presented separately

  5. 4. DGE model • main and most interesting/promising part of the paper • closed economy with a number of frictions • analyses the adjustment path of change in selected variables – proxies for structural reforms ... under different institutional settings + distribution between agents

  6. Policy simulations

  7. Extensions/refinements • model structural reforms which reduce employment and price adjustment costs • conduct alternative monetary policy experiments using DGE model (instead of NK, perhaps different results) • sensitivity analysis? • model solution procedure? • possible problem with derivation of the pricing equation (Phillips curve) • if so, does it change the results?

  8. Typos ? (6) (14) likewise (21)

  9. Phillips curve (15) (likewise 20) s.t. is stohastic discount factor

  10. Alternative derivation of Phillips curve Ireland(2004) and Ali(2001)

  11. 3. Small Neo-Keynesian model • Model difficult to understand • model not shown; only some estimated equations • some variables not named and relationships not described • ω*; p (producer prices?) vs pcore (consumer prices); what is (w - p)?; typos • Estimation using general to specific approach (+ moving average terms) • makes understanding the model even more difficult • additional equations defining moving averages?

  12. Small Neo-Keynesian model (cont.) • Derived conclusions thus difficult to evaluate • no international spillovers - international linkages not presented • monetary policy can speed up the adjustment path ??? • additional reason against joining the currency union? • cause for common EU reforms vs individual country reforms • especially interesting as also concluded that employment and price frictions have no strong effect • is it due to the difference in models used? (NK vs DGE)

  13. 2. Descriptive analysis II Correlation between the change in institutions and cumulative change in NAIRU • Strong conclusion : very gradual impact of reforms (5-10yrs) • But: weak statistics (rule of thumb 0,1 correlation, no Granger causality) • + macromodels suggest different time of impact - which one to use? • DSGE 3-4years; NK 20+ years lag 0 ? lag 0 ?

  14. 1. Descriptive analysis I • Contribution of frictions to structural unemployment (for OECD) • Use results from Bassanini and Duval (2006) to • Define structural unemployment: • structural unemployment drops in late 1990's • Define contributions from reforms: • contribution = constant * variable • rather show variables (if must) (+correlations) • Problem with aggregated countries data : (different directions of reforms) • tax wedge seems the most important • More interesting is looking into individual countries (US)

  15. US: the case for Bush tax cuts

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