Title: The macroeconomic impact of structural reforms
Abstract: It is often argued that differences in economic performance are mainly explained by structural factors. Accordingly, most countries are engaged to a greater or lesser extent in structural reforms on their product & services and labour markets. The economic literature is clear on the long-term benefi ts of these reforms: they raise potential output, reduce unemployment and make economies more resilient to macroeconomic shocks, thereby facilitating the conduct of monetary policy. The question, then, particularly for public policymakers, is how to successfully implement structural policies. Countries have to identify the optimal strategy that will minimise the short-term costs that introducing reforms may incur. Unlocking potential synergies between reforms is key in this regard, insofar as product market reforms boost real wages and employment, while labour market reforms may negatively impact real wages in the short term even as the employment situation improves. This article considers reform efforts in OECD countries. It begins by analysing the lessons of economic theory, drawing a distinction between long-term gains and short-term dynamic effects. The next section looks at successful programmes in several countries, demonstrating that although countries may start from different points, having certain initial conditions in place is important to giving reforms the best chance of success and to making the reform process itself as credible as possible.
Publication Year: 2008
Publication Date: 2008-01-01
Language: en
Type: article
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Cited By Count: 7
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