1

How does labor market reform contribute to business cycle dynamics? I develop a real business cycle model in which labor market reform …

How well does labor market reform perform under different market conditions? This paper shows that a reform aimed at improving labor market flexibility has (un)intended consequences on macroeconomic variables. I developed a New Keynesian model with an environment characterized by frictions in the labor market. I investigate the effects of labor market reforms, described by a permanent change in the labor market freedom index (LMFI), a proxy for reform. The main findings are threefold. First, the long-run implication of improving labor market flexibility depends on the policy’s channel. Second, wage rigidity only matters in the short-run as it either lengthens or quickens the transition path. Third, firms tend to respond differently in the short-run when reform is pre-announced.

I re-examined the conclusions from Lucas’s (1980) study titled “Two Illustrations of the Quantity Theory of Money” with several changes in mind. First, I considered different measurements of money (Divisia or Fisher-Ideal) to avoid the many measurement problems associated with the Federal Reserve’s published data. Second, I used the 10-year Treasury note to replace a short-term interest rate because the quantity theory is about long-run relationships between nominal magnitudes. Third, I used more recent filtering techniques like the Hamilton and Hodrick-Prescott filter. Finally, I used the GDP deflator for personal consumption expenditures instead of the CPI to eliminate any seasonal effect that may be present in quarterly data. The preliminary results have highlighted that filtered data produce larger estimates than the unfiltered counterpart. Also, Lucas’ proposition can only be established in the early subperiod when I used simple-sum M2 growth. When I used other money measurements in the early subperiod, the filtering technique determined if Lucas’ relationships held.