Documents Bouis, Romain 5 results

"In the wake of the Great Recession, a massive monetary policy stimulus was provided in the main OECD economies. It helped to stabilise financial markets and avoid deflation. Nonetheless, GDP growth has been sluggish and in some countries lower than expected given the measures taken, and estimated economic slack remains large. In this context, this paper assesses the effectiveness of monetary policy in recent years. It finds that notwithstanding an almost full transmission of policy interest rate cuts and unconventional policy measures to higher asset prices and lower cost of credit in and outside the banking sector in most countries, with the exception of vulnerable euro area economies, monetary policy stimulus did not show up in stronger growth due to a combination of three factors. First, lower policy interest rates may not have provided as much stimulus as expected given the evidence of a decrease in natural interest rates, resulting from the estimated decline in potential GDP growth in the wake of the crisis. Second, balance sheet adjustments of non-financial companies and households, large uncertainty as well as simultaneous and considerable fiscal consolidation in many OECD countries constituted important headwinds. Third, the bank lending channel of monetary policy transmission appears to have been impaired, mainly due to considerable balance sheet adjustments and prevailing uncertainty, which together limited banks' capacity and willingness to supply credit. The paper also stresses that the monetary accommodation risks having unintended negative consequences which are likely to increase with its duration."

"The prospective normalisation of monetary policies in the main OECD areas will be challenging given that current policy rates are likely to be significantly below neutral levels and that central bank balance sheets will be above the pre-crisis levels by a wide margin. Monetary policy normalisation is likely to start in the United States before other main OECD areas, with potential global spillovers, as was already experienced in mid-2013 when the mere discussion of tapering unsettled global financial markets. A gradual increase in interest rates, in the context of strong growth and rising equity values, would contribute to a balanced US recovery and have a benign impact on the rest of the world. However, a rapid rise in bond yields would risk generating instability in the US shadow banking sector, and the financial system more generally, even if banks seem increasingly resilient to such a shock. Although model simulations suggest that a large and protracted government bond yield shock would not have large trade spillovers in the absence of crisis events in the United States or abroad, an induced increase in bond yields in other countries, together with an induced large decline in equity prices, would have a sizeable effect on the OECD and largest emerging market economies. The latter countries are particularly vulnerable to such spillovers given their generally less liquid financial markets and, in some cases, weak fundamentals related to the banking system and external financing. In the United States, the authorities should aim at managing smoothly the exit and at strengthening the resilience of shadow banking institutions so that the risk of liquidity-induced fire sales is reduced. This should be accompanied in other countries by measures to increase the resilience to interest rate shocks, and when the shock occurs, allowing exchange rates to adjust flexibly and implementing offsetting fiscal measures if scope is available."

"Drawing on new empirical analysis of 30 years of structural reforms across the OECD, this paper sheds light on the impact of reforms over time, identifies the horizon over which their full effects materialise, and investigates whether such effects vary with prevailing economic conditions and institutions. Impulse responses of aggregate outcomes (GDP growth, employment rate) to various labour, product market and tax reforms are estimated at different horizons. This analysis indicates that the benefits from reforms typically take time to fully materialise. When significant effects are found in the short run, reforms seldom involve significant aggregate economic losses; on the contrary they often deliver some benefits. The absence of major depressing effects does not lend support to the view that reforms should be in general accompanied by substantial macroeconomic policy easing in order to deliver some short-term gains. Nevertheless, there is also tentative evidence that some labour market reforms (e.g. of unemployment benefit systems and job protection) pay off more quickly in good times than in bad times, and can even entail short-term losses in severely depressed economies."

"This paper analyses the policy and institutional determinants of long-run economic growth for a sample of OECD and non-OECD countries, with two objectives. First, it assesses the extent to which the main findings from growth regressions covering industrial countries are robust to a larger sample covering lower-income OECD and non-OECD countries. Confirmation is found from pooled mean group estimates for the larger sample of countries that long-run GDP per capita levels are increased inter alia by education policies, trade openness, R&D expenditures and policy frameworks that are conducive to low inflation, although the estimated effect of education is implausibly large. Second, the paper proposes a new growth regression framework that explicitly models technology diffusion and allows exploring the growth effects of a wider set of policies and institutions, while alleviating some of the constraints of the pooled mean group estimator. Under this approach, the estimated return to education is more in line with available evidence from microeconomic studies. Regulatory barriers to entrepreneurship, explicit barriers to trade and – especially – patent rights protection appear to be fairly robust determinants of long-run cross-country differences in technology. Some other policies and institutions such as trade liberalisation are found to speed up technology convergence. There is limited evidence here that the effects of policies and institutions vary depending on countries' level of development. These findings are subject to the usual limitations of growth regression analysis."

"This paper provides an illustrative assessment of the impacts on potential GDP over a 5 to 10-year horizon of structural reform scenarios in the areas of product and labour markets, relying on existing OECD empirical studies. Results of simulations suggest that a gradual alignment of product market regulations to best practice in a broad range of non-manufacturing sectors could boost aggregate labour productivity levels by several per cent over the next decade in many OECD countries, and by over five per cent across most of continental Europe, as well as for the BRIICS. Relaxation of job protection legislation could also raise productivity growth for a while in many OECD and non-OECD G20 countries, although the effects are estimated to be smaller than those from product market reforms. In a scenario under which they would be phased in relatively quickly, labour market reforms in the areas of unemployment benefit systems, activation policies, labour taxes and pension systems could raise employment rates by several percentage points in a number of OECD countries over a 10-year horizon. Large continental European countries would have the largest benefits to reap from reforms. The overall potential GDP gain for the average OECD country from undertaking the full range of reforms considered here might come close to 10% at a 10-year horizon, indicating the presence of ample room for structural reforms to offset the permanent GDP losses from the recent crisis."