Fiscal Adjustment and Business Cycle Synchronization

Luca Agnello (), Guglielmo Maria Caporale and Ricardo Sousa

No 1339, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: 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.

Keywords: Fiscal consolidation; fiscal stimulus; business cycle synchronization (search for similar items in EconPapers)
JEL-codes: C41 E62 (search for similar items in EconPapers)
Pages: 22 p.
Date: 2013
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Fiscal Adjustments and Business Cycle Synchronization (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1339

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