Do institutions and culture matter for business cycles?

Abstract

We examine the relationship between macroeconomic, institutional, and cultural indicators and cyclical fluctuations for European, Middle Eastern and North African Mediterranean countries. Mediterranean cycles are different from EU cycles: the duration of expansions is shorter; the amplitude and the output costs of recessions are larger; and cyclical synchronization is smaller. Differences in macroeconomic and institutional indicators partly account for the relative differences in cyclical synchronization. By contrast, differences in cultural indicators account for relative differences in the persistence, the volatility and the synchronization of cyclical fluctuations. Theoretical and policy implications are discussed.