Growth-promoting Policies and Macroeconomic Stability

Abstract

JT03349501Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. ECO/WKP(2013) Policy reforms aimed at boosting long-run growth often have side effects -positive or negative -on an economy's vulnerability to shocks and their propagation. Macroeconomic shocks as severe and protracted as those since 2007 warrant a reconsideration of the role growth-promoting policies play in shaping the vulnerability and resilience of an economy to macroeconomic shocks. Against this background, this paper looks at a vast array of policy recommendations by the OECD that promote longterm growth -contained in Going for Growth and the Economic Outlook -and attempts to establish whether they underpin macroeconomic stability or whether there is a trade-off. JEL classification codes: E32, E52, E62, O40Keywords: growth, economic policy, business cycles, volatility ***** Politiques de croissance et stabilité macroéconomiqueLes réformes visant à stimuler la croissance à long terme ont souvent des effets secondaires -positifs ou négatifs -sur la vulnérabilité d'une économie face à des chocs et à leur propagation. Des chocs macroéconomiques aussi graves et prolongés que ceux observés depuis 2007 justifient un réexamen de la contribution des politiques de promotion de la croissance à la vulnérabilité et à la résilience d'une économie face à de telles perturbations. Dans cette optique, le présent document passe en revue un large éventail de recommandations d'action formulées par l'OCDE pour encourager la croissance à long termequi figurent dans Objectif croissance et les Perspectives économiques -et cherche à déterminer si les actions recommandées favorisent la stabilité macroéconomique ou si des arbitrages s'imposent. Classification JEL : E32, E52, E62, O40Mots clés : croissance, politique économique, cycles d'activité, volatilité © OECD (2013)You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for commercial use and translation rights should be submitted to rights@oecd.org.

Economic Resilience: What Role for Policies?

“…OECD work by Duval et al (2007) preceding the crisis suggested that tight job protection cushions the impact of a shock on the output gap, but gives rise to greater persistence (takes longer for the output gap to close). On the other hand, recent evidence by Sutherland and Hoeller (2013) including the crisis period suggests that tight employment protection for regular workers does not mitigate the impact of shocks on the output gap, while it still gives rise to greater persistency. .…”

“…Medium-term fiscal frameworks including well-designed fiscal rules can assist fiscal policy in becoming more sustainable, transparent, predictable and countercyclical (Pain and Röhn, 2011;Sutherland and Hoeller, 2013) and hence reduce the build-up of public sector vulnerabilities. In particular, medium-term expenditure rules offer a way of limiting boom-bust spending cycles by setting a multi-year plan or ceiling for government expenditure and ensuring that stronger than expected revenues are saved rather than spent.…”

“…Automatic stabilizers can nonetheless be enhanced to mitigate the negative impacts of downturns without hurting economic efficiency by making them more contingent on the state of the economy (for example, Sutherland and Hoeller, 2013). There are several policies for doing so.…”

“…For instance, Sutherland and Hoeller (2013) find that lower state control is correlated with lower amplification and persistence of shocks on output gaps. Persistence and to a lesser extent amplification of shocks is also less pronounced in economies with less regulated network industries.…”

“…This paper reviews work in two distinct areas. A first strand of work has assessed the capacity of an economy to resist shocks and recover quickly (e.g., Duval et al, 2007;Sutherland and Hoeller, 2013). This work defines a resilient economy as one that better withstands an adverse shock and returns back faster to the pre-shock trend growth rate (i.e., minimizing the cumulative Gross Domestic Product (GDP) loss relative to potential output).…”