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Macroeconomic policy and employment flows

International Labour Organization
International Labour Organization

The document discusses a macroeconomic model that incorporates labour market flows. It aims to better understand labour market dynamics over the business cycle and assess the impact of macroeconomic policies. Key points: - Traditional macro models treat employment as predetermined, but evidence shows labour flows and Okun's Law vary over time. The model incorporates unemployment inflows and outflows. - Labour flows have stark differences across countries and over the business cycle. The model decomposes unemployment changes and links flows to determinants like job creation, destruction, and wages. - It establishes feedback loops between flows, aggregate demand, income, government spending, and wages. This adds labour market dynamics to macroeconomic feedback mechanisms.

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Macroeconomic policy and employment 鍖ows Labour market adjustment mechanisms in macroeconomic models Uma Amara Rani Matthieu Charpe Ekkehard Ernst International Institute for Labour Studies, ILO Project LINK meeting, New York Oct 22nd, 2010
Outline 1 Objectives and main message 2 Background considerations 3 A labour market 鍖ows macro model 4 Model estimation 5 Conclusion Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 2 / 22
Objectives and main message Objectives Objectives Get a micro picture of labour dynamics Look at different margins of labour market 鍖ows Job creation vs. job destruction Assess their dynamics over the cycle Overcoming Okuns fatality Okuns law is time-varying and asymetric How to promote job-rich growth? How does weak employment growth affect the recovery? Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 3 / 22
Objectives and main message Bottom line Main message Important insights from analysing labour 鍖ow dynamics Stark differences in labour 鍖ow dynamics over the business cycle Labour 鍖ow dynamics adds to the macro-economic feedback loops Large (short-run) employment multipliers (> 1), lower in the long-run (due to automatic stabilization) Scenario analysis suggests huge 鍖scal bene鍖ts to be had from additional stimulus Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 4 / 22
Background considerations Traditional macro models Traditional macro models Okuns law as a corner stone Pre-determined employment elasticities of growth: Symmetric relation between output and employment growth Trickle-down effects of stimulus Trickle down effects of stimulus: First investment, than jobs (IMF: resilient recovery) Improved demand side will eventually lead to more (and better?) jobs But: Strong evidence for time-varying Okuns law before the crisis Crisis makes elasticity approach obselete Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 5 / 22
Background considerations Labour 鍖ow macro models Building labour 鍖ows into macro models Labour 鍖ow macro models Since the mid-1990s, labour 鍖ows introduced in DSGE models Merz, 1995; Andolfatto, 1996; Trigari, 2003; Walsh, 2005 Increasingly becoming the industry standard Most New Keynesian models now contain labour 鍖ows Recent 鍖scal policy models exclusively rely on them But: Problems with the business cycle behaviour of 鍖ows Volatility not high enough to match data (Shimer, 2005) Unrealistic wage behaviour Estimation of the model dif鍖cult Internationally comparable data on labour 鍖ows hardly available Strong assumptions wrt functional form and parameter distribution Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 6 / 22
A labour market 鍖ows macro model Labour market 鍖ows and matching Stylised facts on labour 鍖ows Labour market 鍖ows present stark differences across countries over the business cycle Canada Germany 3 2 4 0 2 5 Outflow probability Inflow probability 4 6 Japan USA 3 2 4 0 2 5 4 6 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 Unemployment outflows Unemployment inflows Note: Flow probabilities have been logittransformed Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 7 / 22
A labour market 鍖ows macro model Determinants of labour 鍖ows Labour 鍖ow accounting Decomposing unemployment dynamics Ut = Lt ETt = INt OUTt Decomposing employment creation ETt = JobCreationt JobDestructiont Link unemployment in- and out鍖ows to its determinants Job creation Job destruction Labour force growth Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 8 / 22
A labour market 鍖ows macro model Determinants of labour 鍖ows What drives labour market 鍖ows? Job creation Investment growth, private consumption, external demand Past employment rate, wages User cost of capital, Real share prices Job destruction Wages, real interest rates, tax wedge, external demand Schumpeter effect: TFP, Import growth Labour force dynamics Mainly driven by its own history plus Tax incentives Discouraged worker effects Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 9 / 22
A labour market 鍖ows macro model A macro framework A macro framework I Financial accelerator Interest rates affect net present value of vacancies Real share prices improve investment dynamics Feedback loops In- and out鍖ows feed into AD through Government spending Disposable income Wages Government spending feeds into disposable income private investment Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 10 / 22
A labour market 鍖ows macro model A macro framework A macro framework II Double Phillips curve Hybrid Phillips curve for price dynamics Wage dynamics dependent on unemployment 鍖ows Taylor rule, depending on Expected in鍖ation and output gap Government balances Automatic stabilisers, related to Unemployment in- and out鍖ows Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 11 / 22
Model estimation Data and methodology Data and methodology Data Macro data from OECD Economic Outlook 87 Unemployment 鍖ow data from Elsby et al. (2008) Estimated 鍖ows based on LFS information on unemployment duration Match job creation/destruction rates under certain assumptions Methodology Start with single-equation identi鍖cation Then estimate system of equations Full macro-model on the basis of GMM Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 12 / 22
Model estimation Single equation identi鍖cation Determinants of job creation Decomposition of unemployment out鍖ows shows that: Demand components play an important role (>40%) Indication for some 鍖nancial accelerator effect (>30%) Relative prices (wages) more moderate role (<20%) 60 17.4 Contributions to unemployment outflows (in %) 40 14.1 11.8 20 10.9 0 3.6 20 19.0 40 23.1 User cost of capital Real wage growth Employment rate (lagged) Capital stock growth Growth of real share prices External demand Real disposable income growth Total Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 13 / 22
Model estimation Single equation identi鍖cation Determinants of job destruction Decomposition of unemployment in鍖ows No Schumpeterian effect from import penetration (strong demand effect) Job churning due to changes in interest rates and TFP growth 23.0 50 Contributions to unemployment inflows (in %) 14.0 25 10.9 0 9.0 25 20.1 50 22.9 Growth of real imports External demand Changes in Terms of Trade Labour force growth Growth of Total Factor Productivity Real shortterm interest rate Total Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 14 / 22
Model estimation System-equation approach Estimation Two-step procedure System-equations approach to understand the impact of different policies Use GMM to estimate the full macro model Steady-state analysis Dynamic system allows for unique steady state (details in the paper) Allows to differentiate between short- and long-run effects of policies Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 15 / 22
Model estimation System-equation approach Short- and long-run employment multipliers Policy contributions to outflows (short vs. longterm) Policy contributions to inflows (short vs. longterm) Government Government non Government wage Government Government wage Government non spending wage spending spending spending spending wage spending 40 40 20 20 Contributions (in %) Contributions (in %) 0 0 40 20 40 20 Contributions (in %) Contributions (in %) 20 20 0 0 20 20 Unemployment Hiring Training Public employment Direct job Training Public employment Hiring Unemployment Direct job benefits incentives expenditures services creation expenditures services incentives benefits creation Shortterm effect Longterm effect Shortterm effect Longterm effect on outflows on outflows on inflows on inflows Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 16 / 22
Model estimation Dynamic model simulation Business cycle Constant INt1 LFPRt1 TFPt1 RIRSt1 TaxIndt1 Gapt OUTt (1) INt -3.503*** 0.593*** 1.141*** 0.465*** 0.009*** 2.032*** -0.021*** -0.032*** (0.139) (0.019) (0.095) (0.028) (0.001) (0.237) (0.001) (0.009) Constant OUTt1 ETRt UCCt WRt INVt Gapt INt (2) OUTt -1.311*** 0.606*** 1.790*** -0.008*** -0.868*** 3.517*** 0.031*** 0.145*** (0.145) (0.014) (0.135) (0.002) (0.108) (0.205) (0.002) (0.018) Constant RIRSt1 E {GAPt+1 } GovConst1 TAXt1 E {t+1 } (3) RIRSt 1.201** 0.791*** 0.076*** 4.756** -6.247*** 5.168*** (0.539) (0.012) (0.016) (1.971) (1.322) (1.138) Constant E {RSharet+1 } GovInvt1 Prodt1 RIRLt1 ETt1 GAPt1 (4) INVt 0.007 0.011*** 0.350** 0.831*** -0.001*** 0.473*** 0.001*** (0.006) (0.002) (0.154) (0.051) (0.000) (0.023) (0.000) Constant OUTt INt1 INVt1 GovConst1 TAXt1 NetExportst1 (8) GAPt -12.931*** 1.620*** -1.940*** 56.495*** 22.651*** -30.290* 0.001*** (1.918) (0.136) (0.388) (4.624) (2.083) (18.368) (0.000) Constant t1 E {t+1 } ToTt1 GAPt1 (9) t 0.001*** 0.500*** 0.489*** -0.044*** 0.001*** (0.000) (0.012) (0.013) (0.008) (0.000) Constant WSSEt1 ETt1 (10) WSSEt 0.006*** 0.792*** 0.146*** (0.001) (0.011) (0.039) Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 17 / 22
Model estimation Application: Understanding recovery options Alternatives to austerity I Analysing crisis exit scenarios Early consolidation (individually or globally) Additional spending Government deficit 0.0 Government net lending 0.5 (in % of GDP) 1.0 1.5 2005 2010 2015 2020 Baseline scenario Early withdrawal Global fiscal Additional spending for consolidation 3 years (3% of GDP) Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 18 / 22
Model estimation Application: Understanding recovery options Alternatives to austerity II Substantially different employment patterns Additional stimulus pushes up employment growth beyond trend within 2 years With consolidation the gap will not be closed at the end of the forecast period Employment growth 0.2 Annual rate of employment growth 0.6 0.4 0.2 0.0 (in %) 0.8 2005 2010 2015 2020 Baseline scenario Early withdrawal Global fiscal Additional spending for consolidation 3 years (3% of GDP) Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 19 / 22
Model estimation Application: Understanding recovery options Alternatives to austerity III Distinct transmission mechanisms of policies Additional spending works mainly through higher out鍖ows Fiscal consolidation depresses out鍖ows AND increases in鍖ows Unemployment outflows Unemployment inflows 0.3 2.0 Rate of unemployment outflows Rate of unemployment inflows 0.2 1.5 0.1 1.0 0.1 0.5 0.1 0.0 2005 2010 2015 2020 2005 2010 2015 2020 Baseline scenario Early withdrawal Baseline scenario Early withdrawal Additional spending for 3 years (3% of GDP) Global fiscal consolidation Additional spending for 3 years (3% of GDP) Global fiscal consolidation Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 20 / 22
Conclusion Summary Summary How should countries adjust their exit strategies? 1 Labour market policies more effective than generic government spending 2 Focus on measures that contribute to automatic stabilization 3 Additional stimulus might have positive 鍖scal implications 4 Premature consolidation packages will be damaging on both 鍖ow margins Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 21 / 22
Conclusion Future extensions Way forward Coverage of country speci鍖cities 1 Increase country coverage (developing economies) 2 Consider more complex labour market 鍖ows 3 Estimate country-speci鍖c models Extend the macro framework 1 Financial market interactions la Wasmer and Weil (2004) 2 Enrich policy framework to cover different policy instruments 3 This includes proper treatment of monetary policy 4 Calibrate the model to make it 鍖t for forecasting Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 22 / 22

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Macroeconomic policy and employment flows

  • 1. Macroeconomic policy and employment 鍖ows Labour market adjustment mechanisms in macroeconomic models Uma Amara Rani Matthieu Charpe Ekkehard Ernst International Institute for Labour Studies, ILO Project LINK meeting, New York Oct 22nd, 2010
  • 2. Outline 1 Objectives and main message 2 Background considerations 3 A labour market 鍖ows macro model 4 Model estimation 5 Conclusion Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 2 / 22
  • 3. Objectives and main message Objectives Objectives Get a micro picture of labour dynamics Look at different margins of labour market 鍖ows Job creation vs. job destruction Assess their dynamics over the cycle Overcoming Okuns fatality Okuns law is time-varying and asymetric How to promote job-rich growth? How does weak employment growth affect the recovery? Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 3 / 22
  • 4. Objectives and main message Bottom line Main message Important insights from analysing labour 鍖ow dynamics Stark differences in labour 鍖ow dynamics over the business cycle Labour 鍖ow dynamics adds to the macro-economic feedback loops Large (short-run) employment multipliers (> 1), lower in the long-run (due to automatic stabilization) Scenario analysis suggests huge 鍖scal bene鍖ts to be had from additional stimulus Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 4 / 22
  • 5. Background considerations Traditional macro models Traditional macro models Okuns law as a corner stone Pre-determined employment elasticities of growth: Symmetric relation between output and employment growth Trickle-down effects of stimulus Trickle down effects of stimulus: First investment, than jobs (IMF: resilient recovery) Improved demand side will eventually lead to more (and better?) jobs But: Strong evidence for time-varying Okuns law before the crisis Crisis makes elasticity approach obselete Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 5 / 22
  • 6. Background considerations Labour 鍖ow macro models Building labour 鍖ows into macro models Labour 鍖ow macro models Since the mid-1990s, labour 鍖ows introduced in DSGE models Merz, 1995; Andolfatto, 1996; Trigari, 2003; Walsh, 2005 Increasingly becoming the industry standard Most New Keynesian models now contain labour 鍖ows Recent 鍖scal policy models exclusively rely on them But: Problems with the business cycle behaviour of 鍖ows Volatility not high enough to match data (Shimer, 2005) Unrealistic wage behaviour Estimation of the model dif鍖cult Internationally comparable data on labour 鍖ows hardly available Strong assumptions wrt functional form and parameter distribution Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 6 / 22
  • 7. A labour market 鍖ows macro model Labour market 鍖ows and matching Stylised facts on labour 鍖ows Labour market 鍖ows present stark differences across countries over the business cycle Canada Germany 3 2 4 0 2 5 Outflow probability Inflow probability 4 6 Japan USA 3 2 4 0 2 5 4 6 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 Unemployment outflows Unemployment inflows Note: Flow probabilities have been logittransformed Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 7 / 22
  • 8. A labour market 鍖ows macro model Determinants of labour 鍖ows Labour 鍖ow accounting Decomposing unemployment dynamics Ut = Lt ETt = INt OUTt Decomposing employment creation ETt = JobCreationt JobDestructiont Link unemployment in- and out鍖ows to its determinants Job creation Job destruction Labour force growth Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 8 / 22
  • 9. A labour market 鍖ows macro model Determinants of labour 鍖ows What drives labour market 鍖ows? Job creation Investment growth, private consumption, external demand Past employment rate, wages User cost of capital, Real share prices Job destruction Wages, real interest rates, tax wedge, external demand Schumpeter effect: TFP, Import growth Labour force dynamics Mainly driven by its own history plus Tax incentives Discouraged worker effects Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 9 / 22
  • 10. A labour market 鍖ows macro model A macro framework A macro framework I Financial accelerator Interest rates affect net present value of vacancies Real share prices improve investment dynamics Feedback loops In- and out鍖ows feed into AD through Government spending Disposable income Wages Government spending feeds into disposable income private investment Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 10 / 22
  • 11. A labour market 鍖ows macro model A macro framework A macro framework II Double Phillips curve Hybrid Phillips curve for price dynamics Wage dynamics dependent on unemployment 鍖ows Taylor rule, depending on Expected in鍖ation and output gap Government balances Automatic stabilisers, related to Unemployment in- and out鍖ows Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 11 / 22
  • 12. Model estimation Data and methodology Data and methodology Data Macro data from OECD Economic Outlook 87 Unemployment 鍖ow data from Elsby et al. (2008) Estimated 鍖ows based on LFS information on unemployment duration Match job creation/destruction rates under certain assumptions Methodology Start with single-equation identi鍖cation Then estimate system of equations Full macro-model on the basis of GMM Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 12 / 22
  • 13. Model estimation Single equation identi鍖cation Determinants of job creation Decomposition of unemployment out鍖ows shows that: Demand components play an important role (>40%) Indication for some 鍖nancial accelerator effect (>30%) Relative prices (wages) more moderate role (<20%) 60 17.4 Contributions to unemployment outflows (in %) 40 14.1 11.8 20 10.9 0 3.6 20 19.0 40 23.1 User cost of capital Real wage growth Employment rate (lagged) Capital stock growth Growth of real share prices External demand Real disposable income growth Total Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 13 / 22
  • 14. Model estimation Single equation identi鍖cation Determinants of job destruction Decomposition of unemployment in鍖ows No Schumpeterian effect from import penetration (strong demand effect) Job churning due to changes in interest rates and TFP growth 23.0 50 Contributions to unemployment inflows (in %) 14.0 25 10.9 0 9.0 25 20.1 50 22.9 Growth of real imports External demand Changes in Terms of Trade Labour force growth Growth of Total Factor Productivity Real shortterm interest rate Total Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 14 / 22
  • 15. Model estimation System-equation approach Estimation Two-step procedure System-equations approach to understand the impact of different policies Use GMM to estimate the full macro model Steady-state analysis Dynamic system allows for unique steady state (details in the paper) Allows to differentiate between short- and long-run effects of policies Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 15 / 22
  • 16. Model estimation System-equation approach Short- and long-run employment multipliers Policy contributions to outflows (short vs. longterm) Policy contributions to inflows (short vs. longterm) Government Government non Government wage Government Government wage Government non spending wage spending spending spending spending wage spending 40 40 20 20 Contributions (in %) Contributions (in %) 0 0 40 20 40 20 Contributions (in %) Contributions (in %) 20 20 0 0 20 20 Unemployment Hiring Training Public employment Direct job Training Public employment Hiring Unemployment Direct job benefits incentives expenditures services creation expenditures services incentives benefits creation Shortterm effect Longterm effect Shortterm effect Longterm effect on outflows on outflows on inflows on inflows Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 16 / 22
  • 17. Model estimation Dynamic model simulation Business cycle Constant INt1 LFPRt1 TFPt1 RIRSt1 TaxIndt1 Gapt OUTt (1) INt -3.503*** 0.593*** 1.141*** 0.465*** 0.009*** 2.032*** -0.021*** -0.032*** (0.139) (0.019) (0.095) (0.028) (0.001) (0.237) (0.001) (0.009) Constant OUTt1 ETRt UCCt WRt INVt Gapt INt (2) OUTt -1.311*** 0.606*** 1.790*** -0.008*** -0.868*** 3.517*** 0.031*** 0.145*** (0.145) (0.014) (0.135) (0.002) (0.108) (0.205) (0.002) (0.018) Constant RIRSt1 E {GAPt+1 } GovConst1 TAXt1 E {t+1 } (3) RIRSt 1.201** 0.791*** 0.076*** 4.756** -6.247*** 5.168*** (0.539) (0.012) (0.016) (1.971) (1.322) (1.138) Constant E {RSharet+1 } GovInvt1 Prodt1 RIRLt1 ETt1 GAPt1 (4) INVt 0.007 0.011*** 0.350** 0.831*** -0.001*** 0.473*** 0.001*** (0.006) (0.002) (0.154) (0.051) (0.000) (0.023) (0.000) Constant OUTt INt1 INVt1 GovConst1 TAXt1 NetExportst1 (8) GAPt -12.931*** 1.620*** -1.940*** 56.495*** 22.651*** -30.290* 0.001*** (1.918) (0.136) (0.388) (4.624) (2.083) (18.368) (0.000) Constant t1 E {t+1 } ToTt1 GAPt1 (9) t 0.001*** 0.500*** 0.489*** -0.044*** 0.001*** (0.000) (0.012) (0.013) (0.008) (0.000) Constant WSSEt1 ETt1 (10) WSSEt 0.006*** 0.792*** 0.146*** (0.001) (0.011) (0.039) Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 17 / 22
  • 18. Model estimation Application: Understanding recovery options Alternatives to austerity I Analysing crisis exit scenarios Early consolidation (individually or globally) Additional spending Government deficit 0.0 Government net lending 0.5 (in % of GDP) 1.0 1.5 2005 2010 2015 2020 Baseline scenario Early withdrawal Global fiscal Additional spending for consolidation 3 years (3% of GDP) Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 18 / 22
  • 19. Model estimation Application: Understanding recovery options Alternatives to austerity II Substantially different employment patterns Additional stimulus pushes up employment growth beyond trend within 2 years With consolidation the gap will not be closed at the end of the forecast period Employment growth 0.2 Annual rate of employment growth 0.6 0.4 0.2 0.0 (in %) 0.8 2005 2010 2015 2020 Baseline scenario Early withdrawal Global fiscal Additional spending for consolidation 3 years (3% of GDP) Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 19 / 22
  • 20. Model estimation Application: Understanding recovery options Alternatives to austerity III Distinct transmission mechanisms of policies Additional spending works mainly through higher out鍖ows Fiscal consolidation depresses out鍖ows AND increases in鍖ows Unemployment outflows Unemployment inflows 0.3 2.0 Rate of unemployment outflows Rate of unemployment inflows 0.2 1.5 0.1 1.0 0.1 0.5 0.1 0.0 2005 2010 2015 2020 2005 2010 2015 2020 Baseline scenario Early withdrawal Baseline scenario Early withdrawal Additional spending for 3 years (3% of GDP) Global fiscal consolidation Additional spending for 3 years (3% of GDP) Global fiscal consolidation Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 20 / 22
  • 21. Conclusion Summary Summary How should countries adjust their exit strategies? 1 Labour market policies more effective than generic government spending 2 Focus on measures that contribute to automatic stabilization 3 Additional stimulus might have positive 鍖scal implications 4 Premature consolidation packages will be damaging on both 鍖ow margins Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 21 / 22
  • 22. Conclusion Future extensions Way forward Coverage of country speci鍖cities 1 Increase country coverage (developing economies) 2 Consider more complex labour market 鍖ows 3 Estimate country-speci鍖c models Extend the macro framework 1 Financial market interactions la Wasmer and Weil (2004) 2 Enrich policy framework to cover different policy instruments 3 This includes proper treatment of monetary policy 4 Calibrate the model to make it 鍖t for forecasting Amara, Charpe, Ernst (ILO) Macro policy and employment 鍖ows Oct 2010 22 / 22