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Matteo Cacciatore (HEC Montreal)

19 September 2016 @ 12:45

 

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Date:
19 September 2016
Time:
12:45
Event Category:
Event Tags:

“Market Reforms at the Zero Lower Bound”

Abstract

We study the impact of product and labor market reforms when an economy faces major slack and a binding constraint on monetary policy easing—such as the zero lower bound. To this end, we build a two-country two-final-goods model featuring endogenous producer entry, labor market frictions, and nominal rigidities. We find that while the effect of market reforms depend on the cyclical conditions under which they are implemented, the zero lower bound itself does not appear to matter. In fact, when carried out in a recession, the impact of reforms is typically stronger, not weaker, when the zero lower bound is binding. Contrary to what conventional modeling of product and labor market reforms as price and wage mark-up reductions suggests, there is no simple across-the-board answer to the question of whether the impact of reforms is more or less expansionary at the zero lower bound.