The Role of Structural Reforms on the Price and Financial Stability: Evidence from a Multi-Country PSTR Model

Abstract

This paper examines the effects of structural reforms on price and financial stability through the Panel Smooth Transition Regression model for 84 developed and developing countries in the period 2002-2018. Therefore, this paper aims to determine whether it is a matter of the impact of structural reforms in the real sectors on price stability; and in financial sectors on financial stability in the sampled countries, when output is given in the PSRT models. The results show that structural reforms have a significant impact on the price and financial stability, although the regimes shaped by the value of output gap threshold, differ in the sampled countries. These results present that structural reforms can help to improve the price and financial stability to the extent that they can eliminate supply-demand imbalances, prevent systemic risks and positively affect a deterioration in expectations by supporting new monetary policy designs.