CRISIS AND CURE: COMPARATIVE POLICY RESPONSE TO ECONOMIC FLUCTUATIONS IN ADVANCED SELECTED ECONOMIES

Economic fluctuations can hinder the economic growth of any country while making an economy vulnerable. This paper attempts to analyse the economic fluctuations in four major developed countries of the world including Canada, France, United Kingdom and United States of America. Augmented Dickey Fuller (ADF) test was applied to check the stationarity of GDP series for all the four economies. All the GDP series were found to be integrated of order one. Cyclical components of each GDP series were separated and recovered by using Hodrick- Prescott (HP) filter while showing downturn and recoveries in these economies. As HP filter also soothes out the series so all the cyclical components turn stationary. In order to understand the interaction between USA and Canadian economy Granger Causality test was applied. USA GDP is important to forecast Canadian GDP with all 1, 2 and 3 lags. While Canadian GDP was useful to forecast USA GDP only in case of lag 1. Regarding growth evolution of these four countries during various recessions Canada and France experienced relatively fewer recessions as compared to UK and USA while it seems that UK experienced longest recession and suffered most from the recession. Role of monetary and fiscal policies as crisis response is also discussed for these economies. It is found that USA and Canada have almost fully recovered from the recession but UK and France had to face longer recovery periods. These different recovery patterns might be attributed to different policy responses.