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Bilateral business cycle synchronisation in the EMU: What is the role of fiscal policy and government size?

Author

Listed:
  • Sabrina Bunyan

    (Dep. of Accounting, Finance and Economics, Ulster University)

  • David Duffy

    (Dep. of Accounting, Finance and Economics, Ulster University)

  • George Filis

    (Dep. of Accounting, Finance and Economics, Bournemouth University)

  • Ishmael Tingbani

    (Dep.of Accounting, Finance and Economics, Bournemouth University)

Abstract

This paper investigates the effects of fiscal policy and public-sector size on the bilateral business cycle synchronisation between 14 EU countries, while controlling for the effects of factor productivity, trade, inflation, sectorial specialisation and trade intensity. A time-varying framework is employed to measure bilateral business cycle synchronisation in the first instance, and a panel approach is used to establish the role of fiscal variables in determining these bilateral synchronisations. The findings suggest similarities in the size of the public sector, as well as, divergence in fiscal policy matter for the determination of business cycle synchronisation. Hence, increased fiscal federalism in EMU will contribute to increased business cycle synchronisation. In addition, we show that trade intensity, inflation differentials and differences in capital productivity also matter for the level synchronization. These results remain robust to different specification and sub-periods.

Suggested Citation

  • Sabrina Bunyan & David Duffy & George Filis & Ishmael Tingbani, 2018. "Bilateral business cycle synchronisation in the EMU: What is the role of fiscal policy and government size?," Working Papers 2018.02, International Network for Economic Research - INFER.
    • Handle: RePEc:inf:wpaper:2018.02
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Time varying correlation; EU business cycles; business cycle synchronisation; fiscal policy;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • E - Macroeconomics and Monetary Economics
    • F - International Economics
    • O - Economic Development, Innovation, Technological Change, and Growth

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