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How do fiscal consolidation and fiscal stimuli impact on the synchronization of business cycles ? Luca Agnello, Guglielmo Maria Caporale and Ricardo M. Sousa

By: Agnello, Luca.
Contributor(s): Caporale, Guglielmo Maria | Sousa, Ricardo Magalhaes.
Material type: ArticleArticlePublisher: 2017Subject(s): POLITICA FISCAL | CONSOLIDACION | INCENTIVOS FISCALES | CICLOS ECONOMICOS
Contents:
Disponible en línea a través de la Biblioteca del Instituto de Estudios Fiscales. Resumen. Conclusión. Bibliografía.
In: Bulletin of Economic Research v. 69, n. 4, October 2017, p. 309-329Summary: 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 exchangerates and become members of a monetary union; (iii) a positive effect of bilateral trade on the synchronizationof business cycles. Global factors, such as a rise in global risk aversion and uncertainty anda reversal of nonstandard expansionary monetary policy, can also reduce the degree of co-movementof businesscycles 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.
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OP 573/2017/4 (Browse shelf) Available OP 573/2017/4

Disponible en línea a través de la Biblioteca del Instituto de Estudios Fiscales. Resumen. Conclusión. Bibliografía.

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 exchangerates and become members of a monetary union; (iii) a positive effect of bilateral trade on the synchronizationof business cycles. Global factors, such as a rise in global risk aversion and uncertainty anda reversal of nonstandard expansionary monetary policy, can also reduce the degree of co-movementof businesscycles 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.

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