By eliminating barriers to entry, procompetition product market reforms can eliminate inefficiencies, in turn promoting higher economic activity and employment, and thereby offsetting possible short-term costs of later labour market reforms. But what about monetary policy? As it turns out, the literature says little about how monetary policy drives the reform process.
One view is that an accommodative monetary policy stance may increase the room for manoeuvre of governments, allowing measures to offset some of the short-term costs of reforms.14 But there are certainly some commentators who at present believe that the ECB’s unconventional measures are stifling incentives for reform.