Table 3.
Linear estimates of the determinants of structural reforms
over 1985-2003
|
(1) |
(2) | |
|
Econometric method: |
OLS fixed effects |
Sys-GMMs1 |
|
Dataset: |
Aggregate |
Aggregate |
|
Dependent variable: |
Change in policy stance |
Change in policy stance |
|
Policy stance (-1) |
-0.05 |
-0.02 |
|
[1.30] |
[2.60]** | |
|
Unemployment |
0.003 |
0.0001 |
|
[0.34] |
[0.01] | |
|
Crisis years |
-0.08 |
-0.04 |
|
[2.92]*** |
[2.29]** | |
|
Cyclically-adjusted fiscal surplus |
-0.03 |
-0.02 |
|
[3.05]*** |
[2.88]*** | |
|
D(Cyclically-adjusted fiscal surplus) |
0.04 |
0.02 |
|
[3.03]*** |
[1.93]* | |
|
R squared |
0^Γ6 | |
|
Hansen test of overidentifying restrictions |
Chi2(201) = 16.2 | |
|
Arellano-Bond test for AR (1) |
-3.26*** | |
|
Arellano-Bond test for AR (2) |
-0.52 | |
|
Observations____________________________ |
__________333_________ |
_________333_________ |
Absolute value of t-statistics in parentheses, * significant at 10% level, ** significant at 5%, *** sig
1: instruments (levels of explanatory variables) lagged 2 and 3 periods are used in difference equ
and instruments (first differences of explanatory variables) lagged 1 period are used in level eq
Source: Author's calculations.
4.5 Interactions between the fiscal adjustment variable and monetary policy autonomy
As already noted, one theoretical argument for the presence of the fiscal adjustment
variable in the above regressions is that a temporary relaxation of fiscal policy may help offset
any short-run economic slack associated with the implementation of structural reforms. However,
this “crowding-in” argument should be less compelling when the monetary policy reaction to
reforms can act as a substitute for fiscal accommodation. In a single country with an independent
monetary policy, structural reforms that create short-run economic slack and lower inflation
should bring about lower interest rates and exchange rate depreciation, both of which could in
principle boost demand and thereby allow the added supply capacity to be “crowded in”. But such
198
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