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Title: How Do Fiscal Consolidation and Fiscal Stimuli Impact On The Synchronization of Business Cycles?
Authors: Agnello, L
Caporale, GM
Sousa, R
Keywords: Fiscal consolidation;Fiscal stimulus;Business cycle synchronization;JEL classification numbers;C41;E62
Issue Date: 2016
Publisher: Wiley:
Citation: Bulletin of Economic Research, (2016)
Abstract: 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.
Appears in Collections:Dept of Economics and Finance Research Papers

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