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This paper investigates the impact of country size on the DSEG model estimation of the monetary union. Following DSGE … model for fiscal policy simulations (FiMod) the union is considered to have a two-country structure, the investigated … country has weight in union equal to its population share and the second country represents the rest of members. The model is …
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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)...
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