Cyclical fluctuations in economic activity have moderated over time but the extent and dynamics of
volatility remain different across OECD countries. A reason behind this heterogeneity is that countries
exhibit different degrees of resilience in the face of common shocks. This paper traces divergences in
resilience back to different policy settings and institutions in labour, product and financial markets. Using
pooled regression analysis across 20 OECD countries over the period 1982-2003, the paper identifies the
impact of policy settings on two dimensions of resilience: the impact effect of a shock and its subsequent
persistence. Policies and institutions associated with rigidities in labour and product markets are found to
dampen the initial impact of shocks but to make their effects more persistent, while policies allowing for
deep mortgage markets lower persistence and thereby improve resilience. Combining these two dimensions
of resilience, the paper then uses the estimated equations to derive indicators of resilience for the OECD
countries concerned, based on their current or recent policy settings. Three groups of countries emerge. In
English-speaking countries, simulations suggest shocks have a significant initial effect on activity but this
impact then dies out relatively quickly. By contrast, in many continental European countries the initial
impact of shocks is cushioned but their effect linger for longer, with the cumulated output loss tending to
be larger than in English-speaking countries. Finally a few, mostly small, European countries combine
cushioning of the initial shock with a fairly quick return to baseline.
