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Analyzing Delayed Structural Reforms: Methods and Solutions

Explore why structural reforms are often delayed, how institutions impact reform pace, and methods to address opposition. Utilize simulations and models to illustrate data and offer policy simulations for impactful insights.

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Analyzing Delayed Structural Reforms: Methods and Solutions

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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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