Volatility and Reforms: The Overlooked Virtues of Economic Uncertainty

Does economic uncertainty promote or impede the adoption of structural reforms? This question arises when jointly considering two issues that became particularly relevant during the Great Recession.  On the one hand, the rise in macroeconomic volatility in recent years has stimulated a new literature on how uncertainty impacts economic activities and private investment decisions (see Bloom 2009, 2011, 2011a, 2014). On the other hand, the Crisis has also revealed the need for structural reforms. Surprisingly, little effort has been devoted to studying the effect of uncertainty on public policy decisions such as reforms.  In a recent paper, we aim to fill this gap by empirically investigating whether and how economic uncertainty affects the implementation of structural reforms (Bonfiglioli and Gancia 2015).

 

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