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 ""convergence criteria,"" 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'' abilities to create idiosyncratic fiscal shocks. Our empirical results are economically and statistically significant, and robust.
This paper analyzes the synchronization of business cycles between new and old EU members using various measures. The main findings are that Hungary, Poland and Slovenia have achieved high degree of synchronization for GDP, industry and exports, but not for consumption and services. The other CEECs have achieved less or no synchronization. There has been significant increase in synchronization of GDP and its major components within euro zone. This lends support to the argument of OCA endogeneity but there is also evidence of a world cycle. The consumption-correlation puzzle remains, but its magnitude has greatly diminished in the euro zone members. JEL Classification numbers: E32, F41
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper describes the particular impacts of the financial and economic crisis on Central and Eastern European (CEE) countries, studies pro-cyclicality of fiscal policies, discusses the impact of the crisis on fiscal policy, and the policy response of various governments. After drawing some lessons for fiscal policy from previous emerging market crises, the paper concludes with some thoughts on the appropriate policy response from a more normative perspective. The key message of the paper is that the crisis should be used as an opportunity to introduce reforms to avoid future pro-cyclical fiscal policies, to increase the quality of budgeting and to increase credibility. These reforms should include fiscal responsibility laws comprising medium-term fiscal frameworks, fiscal rules, and independent fiscal councils. Terms of use: Documents inWhen fiscal consolidation is accompanied by fiscal reforms that increase credibility, nonKeynesian effects may offset to some extent the contraction caused by the consolidation. The author is grateful to Maite de Sola for her excellent research assistance, and to country delegates at the conference for their comments and additions to the table containing budget policy measures of CESEE countries. A pénzügyi és gazdasági válság hatása a költségvetési politikára Közép-és Kelet EurópábanDarvas Zsolt ÖsszefoglalóTanulmányunk a pénzügyi és gazdasági válság Közép és Kelet Európai országokra gyakorolt speciális jellemzőit elemzi, tanulmányozza a költségvetési politika ciklikus jellemzőit, a válság hatásait a költségvetési politikára, majd az egyes kormányok reakcióit vizsgálja. Korábbi válságok költségvetési politikára gyakorolt hatásaiból levont következtetések után a tanulmány a költségvetési politika előtt álló lehetőségek normatív elemzésével zárul. A tanulmány legfőbb üzenete, hogy a válságot egy lehetőségként kell felhasználni a költségvetési rendszerek rendbetételére és olyan intézmények meghonosítására, melyek kizárják a jövőbeli pro-ciklikus költségvetési politika lehetőségét és erősítik a hitelességet. Ha a költségvetési konszolidációt olyan költségvetési reformok kísérik, amelyek növelik a hitelességet, akkor nem-Keynesianus hatások részben ellensúlyozhatják a költségvetési konszolidáció termelés csökkentő hatását.Tárgyszavak: költségvetési politika, Közép és Kelet Európa, pénzügyi és gazdasági válság JEL: C32, E62, H60
Studying all possible pairs of eleven major currencies and eleven portfolios in 1976-2008 we show that, when there is no leverage, carry trade is significantly profitable for most currency pairs and portfolios. Positive returns do not diminish in time providing a strong case against the hypothesis of uncovered interest rate parity. We explain these findings with the leveraged nature of carry trade: leverage may increase profitability but it materially increases downside risk. We argue that market inefficiency is related to the level of leverage.
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