Structural reforms in a debt overhang

Javier Andrés (), Oscar Arce () and Carlos Thomas

No 1421, Working Papers from Banco de España

Abstract: We assess the effects of reforms in product and labor markets in a model economy featuring credit restrictions and pre-existing long-term debt. Both elements, which are core features of the current scenario faced by some euro area countries, combine to produce a slow and protracted deleveraging of the private sector and a persistent recession following a negative financial shock. In this environment, we show that product and labor market reforms may stimulate output and employment even in the short run, despite their defl ationary effects. Furthermore, by favoring a faster recovery of investment and collateral values, product market reforms bring forward the end of deleveraging and the exit from recession.

Keywords: deleveraging; collateral constraints; long-run debt; structural reforms (search for similar items in EconPapers)
JEL-codes: E43 E44 E65 G21 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-07
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... /14/Fich/dt1421e.pdf First version, July 2014 (application/pdf)

Related works:
Journal Article: Structural reforms in a debt overhang (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1421

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