NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Zsolt Darvas

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Working Papers

August 2005Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic
with Andrew K. Rose, György Szapáry: w11580
Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with more synchronized business cycles. We also find evidence that reduced fiscal deficits increase business cycle synchronization. The Maastricht %u201Cconvergence criteria,%u201D used to determine eligibility for EMU, encouraged fiscal convergence and deficit reduction. They may thus have indirectly moved Europe closer to an optimum currency area, by reducing countries%u2019 abilities to create idiosyncratic fiscal shocks. Our empirical results are economically and sta...

Published: Fiscal Divergence and Business Cycle Synchronization: Irresponsibility is Idiosyncratic, Zsolt Darvas, Andrew K. Rose, Gyorgy Szapary. in NBER International Seminar on Macroeconomics 2005, Frankel and Pissarides. 2007

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

 
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