Characterizing business cycles in small economies

Viktoria Hnatkovska () and Fritzi Koehler-Geib

No 8527, Policy Research Working Paper Series from The World Bank

Abstract: This paper aims to document a set of stylized facts characterizing business cycle dynamics in smaller economies. The paper uses a large sample of countries spanning 1960-2014 to show that country size is a significant factor affecting countries'volatility, comovement with gross domestic product and real interest rate, and persistence. Specifically, analysis finds that smaller countries (i) tend to have more volatile gross domestic product; (ii) have more volatile, less procyclical, and less persistent investment; (iii) exhibit more volatile trade balance and current account, have more procyclical exports, and thus less countercyclical trade balance; (iv) have more volatile government consumption and more procyclical public revenues and fiscal balance; and (v) possess more procyclical inflation. The effects of country size remain robust even after we control for the level of economic and institutional development, the presence of fiscal rule(s) and fixed exchange rates, and the commodity exporting status.

Keywords: International Trade and Trade Rules; Macro-Fiscal Policy; Economic Adjustment and Lending; Public Sector Economics; Public Finance Decentralization and Poverty Reduction; Macroeconomics and Economic Growth; Economic Policy; Institutions and Governance; Fiscal&Monetary Policy; Macroeconomic Management (search for similar items in EconPapers)
Date: 2018-07-12
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:8527

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