6533b835fe1ef96bd129e745
RESEARCH PRODUCT
HOW DO FISCAL CONSOLIDATION AND FISCAL STIMULI IMPACT ON THE SYNCHRONIZATION OF BUSINESS CYCLES?
L AgnelloGm CaporaleR Sousasubject
fiscal consolidationEconomics and EconometricsC41Fiscal consolidationJEL classification numbersFiscal stimulusbusiness cycle synchronizationE62Business cycle synchronizationfiscal stimuludescription
Using quarterly data for a panel of advanced economies, we show that synchronized fiscal consolidation (stimulus) programmes in different countries make their business cycles more closely linked. We also find: (i) some 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. Global factors, such as a rise in global risk aversion and uncertainty and a reversal of nonstandard expansionary monetary policy, can also reduce the degree of co-movement of business cycles across countries. From a policy perspective, our work shows that an inflation targeting regime coupled with simultaneous fiscal consolidations can lead to more business cycle synchronization.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2017-01-01 |