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The relation between structural reform and macroeconomic policy underlies the widespread perception that the large European economies have under-performed in the past decade in comparison both with their own standards and with the contemporaneous performance of the United States. This book, edited and introduced by Noel Laureate Robert M. Solow, provides analyses of how these economies could take a co-ordinated and simultaneous approach to reform in labour and product markets and the demand side.



1. Introduction

The relation between structural reform and macroeconomic policy was one of the organizing themes of the International Economic Association’s World Congress in Lisbon. Each of the following chapters speaks to that topic directly or indirectly. In this context, ‘structural reform’ is usually shorthand for ‘deregulation’. The issues underlying the basic theme are both up-to-date and timeless, and that is what makes them interesting.
Robert M. Solow

2. Structural Reforms and the Macroeconomy: The Role of General Equilibrium Effects

Structural reforms in factor and product markets have been at the top of the policy agenda since the 1970s. Prominent examples are product-market reforms in a variety of service industries in industrial countries, labour-market reforms in Europe, and worldwide regulation of banking in the form of Basel I and II.
Hans Gersbach

3. Is Fiscal Policy Possible? Is It Desirable?

Forty years ago, at about the time of the International Economic Association’s first World Congress, no one would have bothered to ask the questions that make up the title of this chapter. Jan Tinbergen had made us aware that a society needs as many independent policy instruments as it has independent policy goals it would like to achieve. In the macroeconomic policy field, there were obviously multiple goals, and therefore a need for several instruments. The separate and joint roles of fiscal and monetary policy were a common topic of discussion.
Robert M. Solow

4. Institutional Interactions in Open Economies: Implications for EMU

In this chapter we analyse how the interactions between three groups of institutional actors — firms, unions and central banks — in two open economies determine output and employment in these countries. The role and importance of institutions for economic development has been stressed in recent years, in particular in the European context. First, it was discussed how the institutional innovations that are associated with the formation of the Economic and Monetary Union (EMU) and the introduction of a common currency could impact on the functioning of European labour markets, by either changing the strategic interactions between the various institutional actors (cf. Cukierman and Lippi, 2001; Soskice and Iversen, 1998) or by further encouraging the ongoing processes of European integration, product-market deregulation and the intensification of competition (cf. Nicoletti et al., 2001; Burda, 1999).
Markus Knell

5. Structural Reforms in Labour and Product Markets and Macroeconomic Performance in the European Union

Europe’s key challenges of restoring full employment, creating a knowledge-based economy, preparing for population ageing and safeguarding social cohesion are closely interlinked and, as stressed in the EU Broad Economic Policy Guidelines (BEPG), need to be addressed by a coherent and comprehensive economic policy strategy for the medium to long term. The overarching objective of this strategy is to enhance the capacity of the EU economy to generate high rates of non- inflationary growth over a prolonged period. Basically, this requires the EU to press ahead with deep, comprehensive reforms of product, capital and labour markets, backed up by a sound macroeconomic policy mix aiming at sustained rates of growth close to potential within an environment of price stability.
Karl Pichelmann, Werner Roeger

6. Structural Reforms Addressed to the Labour Market and Macroeconomic Policies

This chapter reflects the point of view of a Western European who was active in the public sector of French social market economies, then often concerned with policy advising, someone who is also a macroeconomist with an interest in labour economics and applied econometrics. Whereas colleagues working on developing economies or on economies in transition are now sometimes confronted with the IMF and its reading of the so-called ‘Washington Consensus’, I was rather faced in the 1990s with OECD and its ‘jobs strategy’.
Edmond Malinvaud

7. Macroeconomic Fluctuations and the Timing of Labour-Market Reform

It is commonly heard that expansionary times are more favourable than recessions for implementing structural reforms in the labour market. Behind this belief is the intuition that structural reforms are ‘painful’ and that such pain is likely to be lighter in a boom. In this chapter, I try to discuss these issues from a more precise and analytical perspective and conclude that this simplistic view should be severely qualified.
Gilles Saint-Paul

8. Debt, Deflation and Declining Growth: New Challenges to the Japanese Economy

The Japanese economy was an envy of the world at the end of 1980s for its strong output activity, rising equity prices, stable consumer prices and apparent financial might. However, after the ‘lost decade’ of the 1990s, Japan has become an economy upon which many countries are averse to model themselves. Stock and land prices have been declining since 1990, and real estate prices have fallen to about one- quarter of their peak level. Non-performing loans are mounting and, after several years of capital injection and blanket deposit guarantees, the banking crisis is not completely over. Most Japanese banks are under severe pressure to raise more capital, after losing much in writing off losses from non-performing loans. The economic growth rate was quite low during the 1990s. Prices and wages have been generally declining since the late 1990s and deflation seems to have set in.
Takatoshi Ito
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