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Mr. Romain A Duval, Davide Furceri, and João Tovar Jalles
We explore the impact of major labor and product market reforms on current account dynamics using a new “narrative” database of major changes in employment protection for regular workers and product market regulation for non-manufacturing industries covering 26 advanced economies over the past four decades. Our main finding is that product market deregulation is associated with a weakening of the current account, while labor market deregulation is associated with an improvement. These effects are transitory and driven by both saving and investment responses. Labor and product market reforms both have a more positive impact on the current account balance when implemented under weak macroeconomic conditions. Our results are broadly consistent with predictions from recent DSGE models with endogenous producer entry and labor market frictions.
Mr. Romain A Duval, Davide Furceri, and João Tovar Jalles
This paper explores the short-term employment effect of deregulating job protection for regular workers and how it varies with prevailing business cycle conditions. We apply a local projection method to a newly constructed “narrative” dataset of major regular job protection reforms covering 26 advanced economies over the past four decades. The analysis relies on country-sector-level data, using as an identifying assumption the fact that stringent dismissal regulations are more binding in sectors that are characterized by a higher “natural” propensity to regularly adjust their workforce. We find that the responses of sectoral employment to large job protection deregulation shocks depend crucially on the state of the economy at the time of reform——they are positive in an expansion, but become negative in a recession. These findings are consistent with theory, and are robust to a broad range of robustness checks including an Instrumental Variable approach using political economy drivers of reforms as instruments. Our results provide a case for undertaking job protection reform in good times, or for designing it in ways that enhance its short-term impact.
International Monetary Fund. Research Dept.
The Summer 2017 issue of the IMF Research Bulletin highlights new research such as recent IMF Working Papers and Staff Discussion Notes. The Research Summaries are “Structural Reform Packages, Sequencing, and the Informal Economy (by Zsuzsa Munkacsi and Magnus Saxegaard) and “A Broken Social Contract, Not High Inequality Led to the Arab Spring” (by Shantayanan Devarajan and Elena Ianchovichina). The Q&A section features “Seven Questions on Fintech” (by Tommaso Mancini-Griffoli). The Bulletin also includes information on recommended titles from IMF Publications and the latest articles from the IMF Economic Review.
Angana Banerji, Mr. Valerio Crispolti, Ms. Era Dabla-Norris, Mr. Romain A Duval, Mr. Christian H Ebeke, Davide Furceri, Mr. Takuji Komatsuzaki, Mr. Tigran Poghosyan, Vitor Gaspar, Mr. Maurice Obstfeld, and Poul M. Thomsen

DISCLAIMER: Staff Discussion Notes (SDNs) showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. The views expressed in Staff Discussion Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. DISCLAIMER: Staff Discussion Notes (SDNs) showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. The views expressed in Staff Discussion Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Angana Banerji, Mr. Valerio Crispolti, Ms. Era Dabla-Norris, Mr. Romain A Duval, Mr. Christian H Ebeke, Davide Furceri, Mr. Takuji Komatsuzaki, and Mr. Tigran Poghosyan
Product and labor market reforms are needed to lift persistently sluggish growth in advanced economies. But reforms have progressed slowly because of concerns about their distributive and short-term economic effects. Our analysis, based on new empirical and numerical analysis and country case-studies shows that most labor and product market reforms can improve public debt dynamics over the medium-term. This because reforms raise output by boosting employment and/or labor productivity. But the effect of some labor market reforms on budgetary outcomes and fiscal sustainability depends critically on business cycle conditions. Our evidence also suggests that some temporary and well-designed up-front fiscal stimulus can help enhance the economic impact of reforms. In the past, countries have used fiscal incentives in the past to facilitate reforms by alleviating transition and social costs. But strong ownership of reforms was crucial for their successful implementation.
International Monetary Fund. Research Dept.

Abstract

Des réalignements macroéconomiques majeurs influent différemment sur les perspectives selon les pays et régions du monde. L'édition d'avril 2016 des Perspectives de l'économie mondiale examine les causes et les effets de ces phénomènes de réalignement, qui nourrissent de fortes incertitudes et influent sur les perspectives économiques. Il s'agit notamment du ralentissement et du rééquilibrage de l'économie chinoise, de la poursuite de la baisse des cours des produits de base, du ralentissement de l'investissement et des échanges qui en découle, et de la diminution des flux de capitaux vers les pays émergents et les pays en développement. Par ailleurs, des chapitres analytiques étudient le ralentissement des flux de capitaux vers les pays émergents depuis le pic de 2010 (principales caractéristiques, comparaisons avec des ralentissements précédents, facteurs explicatifs, et influence de la flexibilité du taux de change sur la dynamique du cycle des entrées de capitaux) et se penchent sur la question de savoir si des réformes des marchés des produits et du travail pourraient améliorer les perspectives économiques des pays avancés, en examinant l'évolution récente et les possibilités de réformes supplémentaires, les voies par lesquelles les réformes affectent l'activité économique selon que la conjoncture économique est favorable ou non, les effets macroéconomiques des réformes à court terme et à moyen terme, ainsi que l'échelonnement des réformes et la coordination avec d'autres politiques en vue d'en maximiser les avantages économiques quantitatifs potentiels. Un dossier spécial analyse dans le détail la transition énergétique dans une période caractérisée par des prix des combustibles fossiles peu élevés.

International Monetary Fund. Research Dept.

Abstract

Major macroeconomic realignments are affecting prospects differentially across the world’s countries and regions. The April 2016 WEO examines the causes and implications of these realignments—including the slowdown and rebalancing in China, a further decline in commodity prices, a related slowdown in investment and trade, and declining capital flows to emerging market and developing economies—which are generating substantial uncertainty and affecting the outlook for the global economy. Additionally, analytical chapters examine the slowdown in capital flows to emerging market economies since their 2010 peak—its main characteristics, how it compares with past slowdowns, the factors that are driving it, and whether exchange rate flexibility has changed the dynamics of the capital inflow cycle—and assess whether product and labor market reforms can improve the economic outlook in advanced economies, looking at the recent evolution and scope for further reform, the channels through which reforms affect economic activity under strong versus weak economic conditions, reforms’ short- to medium-term macroeconomic effects, and sequencing of reforms and coordination with other policies to maximize their potential quantitative economic benefits. A special feature analyzes in depth the energy transition in an era of low fossil fuel prices.

International Monetary Fund. Research Dept.

Abstract

Los principales reajustes macroeconómicos están afectando de manera distinta a las perspectivas económicas de los diferentes países y regiones. En la edición de abril de 2016 del informe WEO se examinan las causas e implicaciones de estos reajustes —que incluyen la desaceleración y el reequilibramiento en China, un nuevo descenso de los precios de las materias primas, la consiguiente desaceleración de la inversión y el comercio y la disminución de los flujos de capital a las economías de mercados emergentes y en desarrollo— que están generando mucha incertidumbre y están afectando las perspectivas para la economía mundial. Además, en los capítulos analíticos se estudia la desaceleración de los flujos de capital a las economías de mercados emergentes después de que alcanzaran cotas máximas en 2010 —las características principales, el contraste con otras desaceleraciones, las causas y la posibilidad de que la flexibilidad cambiaria haya alterado la dinámica del ciclo de entradas de capital— y se evalúa si las reformas en los mercados laboral y de productos pueden mejorar las perspectivas económicas en las economías avanzadas, para lo cual se analizan la evolución reciente y el margen para introducir más reformas, los canales por los cuales las reformas inciden en la actividad económica ya sea en entornos económicos sólidos o débiles, los efectos macroeconómicos de las reformas a corto y mediano plazo y la sincronización y coordinación de las reformas con otras políticas a fin de aprovechar al máximo sus potenciales ventajas económicas cuantitativas. En una sección especial se analiza a fondo la transición energética en una era de precios bajos de los combustibles fósiles.

International Monetary Fund. Research Dept.

Abstract

Major macroeconomic realignments are affecting prospects differentially across the world’s countries and regions. The April 2016 WEO examines the causes and implications of these realignments—including the slowdown and rebalancing in China, a further decline in commodity prices, a related slowdown in investment and trade, and declining capital flows to emerging market and developing economies—which are generating substantial uncertainty and affecting the outlook for the global economy. Additionally, analytical chapters examine the slowdown in capital flows to emerging market economies since their 2010 peak—its main characteristics, how it compares with past slowdowns, the factors that are driving it, and whether exchange rate flexibility has changed the dynamics of the capital inflow cycle—and assess whether product and labor market reforms can improve the economic outlook in advanced economies, looking at the recent evolution and scope for further reform, the channels through which reforms affect economic activity under strong versus weak economic conditions, reforms’ short- to medium-term macroeconomic effects, and sequencing of reforms and coordination with other policies to maximize their potential quantitative economic benefits. A special feature analyzes in depth the energy transition in an era of low fossil fuel prices.