Who Dares, Wins: Labor Market Reforms and Sovereign Yields
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Summary:
The paper shows that investors value the adoption of structural reforms by lending at lower cost. The reform-induced reduction of long-term yields is bigger when reforms are initiated in good times and in countries facing high borrowing costs. Importantly, there is no statistical evidence that markets systematically punish countries that launch reforms concomitantly with fiscal stimulus. The paper also finds that the social context matters: structural reforms lead to a short-lived overshooting of yields when followed by strikes or lockouts. Controlling for endogeneity issues does not reject the central finding of the paper. These results are economically plausible and confirmed even after using sovereign credit ratings as an alternative dependent variable. These results have two main implications: (i) on average, labor market reforms lower borrowing costs; and (ii) country-specific circumstances also play a role.
Series:
Working Paper No. 2017/141
Subject:
Banking crises Bond yields Employment protection Financial crises Financial institutions Labor Macrostructural analysis Output gap Production Structural reforms
English
Publication Date:
June 28, 2017
ISBN/ISSN:
9781475595857/1018-5941
Stock No:
WPIEA2017141
Pages:
33
Please address any questions about this title to publications@imf.org