The present study adds to the literature on the impact of ﬁscal policy on business cycle synchronisation. Speciﬁcally, it investigates the effects of ﬁscal policy on business cycle synchronisation between 10 EMU member-countries and the aggregate EMU12-wide business cycle, using a time-varying framework. The ﬁndings suggest that fiscal policy has important effects on business cycle synchronisation for all 10 EMU countries. Hence, ﬁscal policy is shown to have the potential to be supportive of macroeconomic stabilisation in the Eurozone. However, the evidence reveals that none of the countries under examination consistently uses ﬁscal policy to promote business cycle synchronisation.
- Time-varying correlation
- EMU business cycle
- Business cycle synchronisation
- Fiscal policy
- Diag-BEKK model