Presentation on theme: "Comments on Mourougane and Vogel's The Impact of Selected Structural Reforms: Speed of Adjustment and Distributional Effects Maroje Lang, CNB."— Presentation transcript:
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 However, structural reforms often delayed or stopped Why ?
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
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
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
Policy simulations Model with frictions Reform proxiesSubject toConclusion income tax employer social security contributions replacement rate consumption tax employment adjustment cost (+search&matching) price adjustment cost financial market imperfections income tax employer social security contributions replacement rate ↓ fiscal adjustment different employment and price adjustment costs (EU and US) Employment adjustment costs have a MODERATE impact on real adjustment... while price adjustment costs affect nominals financial market imperfections (liquidity constrained consumers) Financial frictions have STRONG real effects analysis of distributional effects and compensation schemes Some reforms can entail short-term distributional costs... but budgetary schemes can reduce them monetary policy fiscal rule
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?
Alternative derivation of Phillips curve Ireland(2004) and Ali(2001)
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?
Small Neo-Keynesian model (cont.) Derived conclusions thus difficult to evaluate 1. no international spillovers - international linkages not presented 2. 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)
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 ?
1. Descriptive analysis I Contribution of frictions to structural unemployment (for OECD) Use results from Bassanini and Duval (2006) to 1. Define structural unemployment: structural unemployment drops in late 1990's 2. 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)