Get access

Institutions and Business Cycles

Authors


  • An earlier version of this paper was presented at the European Monetary Forum in Athens, Greece, 30–31 March 2012. We received helpful comments from two anonymous referees as well as Sumru Öz and Monica Schwartzman.

Sumru Altug

Koç University and CEPR

Istanbul

Turkey

saltug@ku.edu.tr

Bilin Neyapti

Bilkent University

Ankara

Turkey

neyapti@bilkent.edu.tr

Mustafa Emin

Bocconi University

Milan

Italy

Abstract

This paper investigates the relationship between the main features of business cycles and the institutional and structural characteristics of 62 industrial, emerging and formerly centrally planned economies from all continents. We find that a variety of institutional indicators, including stronger governance, greater civil liberties, more developed labour and capital markets, and higher levels of central bank independence are significantly associated with business cycle characteristics – namely, volatility and persistence. Our study also demonstrates that similarity of the institutional environment in dimensions such as governance and the level of labour and capital market development strongly affects the co-movement of business cycles across countries.

Ancillary