0000000000652376
AUTHOR
G Caporale
Fiscal Adjustments and Business Cycle Synchronization
Using a panel of annual data for 20 countries we show that synchronized fiscal consolidation (stimulus) programmes in different countries make their business cycles more closely linked, especially in the case of fiscal adjustments lasting 2 or 3 years. We also find: (i) little evidence of decoupling when an inflation targeting regime is unilaterally adopted; (ii) an increase in business cycle synchronization when countries fix their exchange rates and become members of a monetary union; (iii) a positive effect of bilateral trade on the synchronization of business cycles
The Euro and Monetary Policy Transparency
This paper focuses on a possible explanation for the weakness of the euro, namely the lack of transparency of the European Central Bank's (ECB) monetary policy. In order to obtain a time-varying measure of monetary policy uncertainty in both the U.S. and Euroland, we estimate a Stochastic Volatility model using policy-adjusted short-term interest rates. We also analyze directly the impact of higher uncertainty on the euro-dollar exchange rate. The empirical findings are in line with those of other studies, and show that the U.S. Fed is more transparent than the ECB. This results in higher volatility of European interest rates, capital outflows, and a weaker euro vis-a-vis the U.S. dollar.