How long does it take until the positive effects of structural reforms do materialize?
|Název práce v češtině:||How long does it take until the positive effects of structural reforms do materialize?|
|Název v anglickém jazyce:||How long does it take until the positive effects of structural reforms do materialize?|
|Akademický rok vypsání:||2018/2019|
|Typ práce:||bakalářská práce|
|Ústav:||Institut ekonomických studií (23-IES)|
|Vedoucí / školitel:||PhDr. Jaromír Baxa, Ph.D.|
|Řešitel:||skrytý - zadáno vedoucím/školitelem|
|Zásady pro vypracování|
|Research question and motivation
The aim of this thesis will be to empirically assess the amount of time it takes for structural reforms to have a positive impact on the economy.
The European Central Bank defines structural reforms as “measures that change the fabric of an economy” and that allow for balanced growth of that economy.
Those are measures that should promote economic growth, at least in the long term (de Bandt & Vigna, 2008) . However, the question stands whether there are any costs to the structural policies, and if so, how long it takes before the benefits outweigh the costs. The answer to this question is important to determine since it is helpful in assessing, for example, whether to use these policies to mitigate recessions, which are obviously short-term phenomena. It has been found that reforms are more often undertaken when the economy is not doing well (Dias et al., 2017). But what is the short-term effect of these policies? Opinions on this differ, and we often find they are in direct contradiction with each other.
OECD (Bouis et al., 2012) states that structural reforms are generally beneficial even in the short term. They find that structural reforms can entail costs only in very specific cases. In the language of our thesis, this would mean that the positive effects materialize almost immediately.
A very different view is presented by De Grauwe, & Ji (2016) who studied the effect of structural reforms with regard to asymmetric shocks in the eurozone. They infer that structural reforms introducing more flexibility into the economy help in case of permanent asymmetric shocks. However, with short term shocks in the form of busts, the structural reforms only aggravate the situation. Furthermore, they found only a small impact of structural reforms on long-term growth in the eurozone.
Eggertsson, Ferrero and Raffo (2014) conclude from their simulations that structural reforms, while efficient in the long term, can have serious short-term consequences for the economy if the monetary policy is at the zero lower bound.
Babecký and Havránek (2013) performed a meta-analysis of papers on the relationship between structural reforms and economic growth. They conclude that the studies confirm that reforms generate costs in the short-term of about one-year and then generate benefits in the following periods.
The variation of the results depends largely on the methods used, the type of reforms chosen, the initial conditions, as well as the data used (especially the choice of structural reforms indicators) (Babecký & Campos, 2011). I will therefore focus on these issues when performing the analysis.
This thesis will empirically investigate the question stated above. Rather than concentrating on the magnitude of the impact of structural reforms as most studies do, it will focus on estimating the time before the effects take place. Before performing any regressions, I will analyse the definitions of various reforms, define interactions between the reforms (as proposed by Babecký & Campos, 2011), as well as carefully decide which data sources (of the reform indicators) to use and why, and consider other factors, taking into account the research that has already been done. The proposed reasearch is especially relevant because of the apparent lack of this kind of research in recent years when data collected during the Great Recession and in the immediate aftermath has become available.
|Seznam odborné literatury|
Babecký, J., & Campos, N. F. (2011). Does reform work? An econometric survey of the reform-growth puzzle. Journal of Comparative Economics, 39(2), 140–158. https://doi.org/10.1016/j.jce.2010.11.001
Babecký, J., & Havránek, T. (2013). Structural Reforms and Economic Growth: A Meta-Analysis. CNB Working Paper Series, (8).
Bouis, R., Causa, O., Demmou, L., Duval, R., & Zdzienicka, A. (2012). The Short-Term Effects of Structural Reforms: An Empirical Analysis. OECD Economics Department Working Papers, (949).
de Bandt, O., & Vigna, O. (2008). The macroeconomic impact of structural reforms. Banque de France Bulletin, Quarterly Selection of Articles, (Spring 2008).
De Grauwe, P., & Ji, Y. (2016). Flexibility Versus Stability: A Difficult Tradeoff in the Eurozone. In Credit and Capital Markets – Kredit und Kapital (Vol. 49). https://doi.org/10.3790/ccm.49.3.375
Dias, A., Silva, D., & Givone, A. (2017). When do countries implement structural reforms ? ECB Working Paper, (2078).
Eggertsson, G., Ferrero, A., & Raffo, A. (2014). Can structural reforms help Europe? Journal of Monetary Economics, 61(1), 2–22. https://doi.org/10.1016/j.jmoneco.2013.11.006
|Předběžná náplň práce|
The appropriate methodology will be chosen after a careful literature review. I plan to exploit conventional macroeconomic data that are widely available.
◦ What are structural reforms
◦ Why it is important to study how long it takes for them to materialize
2. Literature review
◦ Various definitions of reforms, their classification
◦ What influences their success/failure
◦ Overview of data sources
◦ Overview of existing models
◦ What methodology & data was chosen, detailed description of the model
◦ How the analysis was performed
◦ Answer to the research question
◦ What can be drawn from the results, potential policy implications
◦ What could be studied in the future