György Szapáry

Business Cycle Synchronization in the Enlarged EU: Comovements in the New and Old Members

It is generally recognized that countries wanting to join a monetary union should display the optimal currency area properties. One such property is the similarity of business cycles. We therefore undertook to analyze the synchronization of business cycles between the EMU and eight new EU members from Central and Eastern European countries (CEECs), for which the next step to be considered in the integration process is entry into the EMU. In contrast to the usually analyzed GDP and industrial production data, we extend our analysis to the major expenditure and sectoral components of GDP and use several measures of synchronization. The main findings of the paper are that Hungary, Poland and Slovenia have achieved a high degree of synchronization with the EMU for GDP, industrial production and exports, but not for consumption and services. The other CEECs have achieved less or no synchronization. There has been a significant increase in the synchronization of GDP and also its major components in the EMU members since the start of the run-up to EMU. While this lends support for the existence of OCA endogeneity, it can not be unambiguously attributed to it because there is also evidence of a world business cycle. Another finding is that the consumption-correlation puzzle remains, but its magnitude has greatly diminished in the EMU members, which is good news for common monetary policy.

Financial Contagion in Five Small Open Economies: Does the Exchange Rate Regime Really Matter?

This paper examines the spillover effects of the global financial crises of 1997-9 on five small open economies with different types of exchange rate regimes: the Czech Republic, Greece, Hungary, Israel and Poland. We found empirical evidence that the regional aspect played a dominant role in the intensity of the spillover effects. We found no empirical evidence that the pressures on exchange rates, interest rates and stock markets were primarily influenced by the exchange rate regime in place. Our findings do not support the commonly held view that flexible regimes are the best choice for small open emerging market economies exposed to volatile capital flows. Copyright 2000 by Blackwell Publishers Ltd.

The Stability and Growth Pact from the Perspective of the New Member States

The purpose of this paper is to examine the fiscal characteristics of the new members in the light of the requirements of the SGP and the criticisms levelled against the Pact and to see in what ways their initial conditions differ from those faced by the current euro zone countries in the run-up to the adoption of the euro. Overall, because of the lower debt levels and greater yield convergence already achieved, the new members will be able to rely less on gains from yield convergence than the current euro zone members were able to do. EU accession will also have a negative net impact on the budgets of the new members in the early years of membership. We also look at the cyclical sensitivities of the budgets and find that in the new members the smoothing capacity of the automatic stabilizers might be weaker than in the current euro zone members. Beyond these general characteristics, we also emphasize that there are large differences in the starting fiscal positions of the new members. Some of the policy implications of our findings are discussed.

China; Economic Reform and Macroeconomic Management

China encountered problems preserving economic stability while pursuing reforms aimed at increasing its economic flexibility and efficiency. This paper examines Chinas experience with market-oriented reforms since 1978, offering lessons for other centrally planned economies in the midst of transition to free markets.

Fiscal Adjustment in the Transition Process: Hungary, 1990-1999

Two economists of the National Bank of Hungary review fiscal developments during a decade of transition in Hungary. The paper examines the role of fiscal policy in stabilizing the economy in the face of external and reform-induced shocks, the way in which fiscal policy contributed to the reforms, and the manner in which the downsizing of the government was implemented. The authors also analyze the main causes of public debt accumulation and sources of financing. The paper concludes by identifying some lessons to be derived from the Hungarian experience. Journal of Economic Literature, Classification Numbers: H62, P27, P35. 7 figures, 9 tables, 20 references.

The evolving role of tax policy in China

Abstract Market-oriented economic reforms in centrally planned economies have altered the functions and the objectives of key policy instruments, particularly in the case of fiscal policy. As a result of reform, economic management requires the use of indirect levers to regulate the behavior of increasingly autonomous economic agents. In this respect, fiscal policy becomes central and its macroeconomic role is enhanced. This paper studies the recent Chinese experience, reviewing fiscal developments and analyzing the effectiveness and the appropriateness of tax policies in performing their newly enhanced macroeconomic role.

Market-Oriented Reform and Fiscal Policy

One of the most prominent economic developments of this decade—a development with perhaps a modest immediate impact on the world economy but with the potential to have a substantial impact in the future—is the spreading and deepening of market-oriented economic reforms in centrally planned economies (CPEs). Initiated in Yugoslavia and Hungary, boldly pursued in China, and now also being experimented within the Soviet Union, Poland, and elsewhere, these reforms carry the potential to dramatically increase the efficiency of these economies and expand their role in the global economy.2Recognizing that the rigidities inherent in central planning have seriously inhibited the efficient allocation and use of resources and have not provided adequate incentives for productivity gains, CPEs have moved to enhance freedom of choice for economic agents in the decision-making process and strengthen the role of market forces through the gradual removal of administrative controls and the fostering of competition. Even when basic structures, such as widespread state ownership of productive factors, have not been radically changed, reforms have aimed at introducing elements that replicate free-market conditions, inducing economic agents to behave and react as they would in a competitive environment. As a result, the role of central planning has diminished and, in the design of economic policy, more emphasis is being given to the use of indirect levers of macroeconomic management to regulate the behavior of increasingly autonomous economic agents.