different dating procedures show that there is no significant difference in the duration of business cycles between developed and developing countries (see Male, 2010 among others). Yet, others show more mixed evidence. For instance, Calderón and Fuentes (2007) find that on some dimensions, such as the duration of contractions, developed and developing countries are similar, while on others, such as duration of expansions, they differ, with developing countries experiencing shorter expansions, on average.

With these results in mind, we turn to the HP filter to decompose the series into a cyclical and trend components. To apply the HP filter, a choice of the smoothing parameter must be made. A default choice of the smoothing parameter for annual data used in the literature is 100. However, our findings from the Harding and Pagan procedure suggest that small countries business cycles may be somewhat shorter than the business cycles in large economies, which requires using a lower value for the smoothing parameter. We choose to start with the default value of the smoothing parameter equal to 100 for annual series, as our benchmark. This choice also facilitates the comparison of our results with the existing studies that rely on the HP filter to characterize business cycles in developed and developing countries. Then we consider a lower smoothing parameter for small economies in the robustness analysis, which is discussed in appendix D.

In the main text we focus on the results obtained with the HP filter, while the robustness evaluations using the BP filter are presented in appendix D.

After having obtained the cyclical components of the key macroeconomic variables such as gross domestic product (GDP), gross national income (GNI), private and government consumption and investment, employment, current account, trade balance, terms of trade, real interest rates, fiscal balance, public revenues and expenditures, etc., we characterize their volatility, persistence and the patterns of cyclicality with GDP and real interest rate.

This analysis provides us with a set of stylized facts about the business cycles of large versus small, developed versus developing countries, and those with and without fiscal rules in place.

# **4. Results**

Next, we turn to the business cycle statistics for our sample of countries. We are interested in characterizing the volatility of key macroeconomic aggregates, such as output, income, and employment, components of aggregate demand, external variables, and variables capturing the stance of fiscal and monetary policy; the cyclicality of these variables with output and interest rate; as well as their persistence.

Trade balance, current account and fiscal balance are computed as a share of GDP. Interest rate is real lending rate computed as the difference between the lending rate and the consumer price index (CPI) inflation rate. All series (except trade balance, current account, fiscal balance, terms of trade and real interest rate) are log-transformed. To obtain the cyclical components of the variables, they are Hodrick-Prescott (HP) filtered with the smoothing parameter of 100. We also considered a lower smoothing parameter of 6.25 as advocated by Ravn and Uhlig (2002) and 16