Giuseppe Fiori (Universidade de São Paulo)
8 February 2012 @ 12:00
We develop a dynamic stochastic general equilibrium model with endogenous producer entry and labor market frictions to study the macroeconomic effects of deregulating product and labor markets in Europe. Three results emerge. First, deregulation has positive welfare effects, but it can involve short-run costs, including higher unemployment and lower consumption. Second, the effects of deregulating one market depend on the level of regulation in the other. Policymakers can exploit this interdependence to increase the welfare gains of reforms. Third, deregulation changes the business cycle properties of the economy, amplifying impact responses to shocks but reducing persistence.