Output and unemployment dynamics in transition |
| |
Authors: | VIVEK H DEHEJIA DOUGLAS W DWYER |
| |
Institution: | 1. Carleton University and CESifo;2. Moody's Risk Management Services |
| |
Abstract: | This paper examines transition dynamics in a search economy. We contrast two extreme cases: a completely unexpected reform and a fully anticipated reform. We show that announcing the reform in advance leads to stagnation in anticipation and output cycles after the implementation, that are more volatile than had a reform of identical magnitude been implemented immediately. However, the more volatile output trajectory of the anticipated case yields a higher PDV of output than an unanticipated reform of equal magnitude. This suggests that an anticipated reform is better than an unanticipated reform, even though the former induces greater volatility. |
| |
Keywords: | Adjustment costs Industy restructuring Transition dynamics Policy reform JEL Codes: O1 P1 |
|