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How Fat-Tailed is US Output Growth?

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  • Reiner Franke

Abstract

Several studies have recently rejected the common hypothesis that aggregate output is normally distributed. The present paper reconsiders this issue for US output growth. To this end, it focusses on the shape parameter b of the exponential power distribution (EPD), the two polar values of which constitute the normal distribution and the Laplace distribution with its fatter tails, respectively. The paper first warns against premature conclusions that neglect a structural break in output volatility. On the basis of a battery of Monte Carlo experiments, it is then found out that the results strongly depend on which subperiod is considered, the Great Inflation (GI) or the Great Moderation (GM) period, and which data are referred to, the growth rates of GDP, firm sector output, and quarterly or monthly industrial production (IP). Here, only quarterly IP can be said to exhibit fat tails in GI as well as GM; other evidence is mixed.

Suggested Citation

  • Reiner Franke, 2015. "How Fat-Tailed is US Output Growth?," Metroeconomica, Wiley Blackwell, vol. 66(2), pages 213-242, May.
    • Handle: RePEc:bla:metroe:v:66:y:2015:i:2:p:213-242
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    File URL: http://hdl.handle.net/10.1111/meca.12067
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    References listed on IDEAS

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    Cited by:

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    2. D’Orazio, Paola & Valente, Marco, 2019. "The role of finance in environmental innovation diffusion: An evolutionary modeling approach," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 417-439.
    3. Ellis Scharfenaker & Gregor Semieniuk, 2017. "A Statistical Equilibrium Approach to the Distribution of Profit Rates," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 465-499, July.
    4. Franke, Reiner, 2022. "An empirical test of a fundamental Harrod-Kaldor business cycle model," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 1-14.
    5. Sandro Claudio Lera & Didier Sornette, 2017. "GDP growth rates as confined L\'evy flights," Papers 1709.05594, arXiv.org.
    6. Williams, Michael A. & Baek, Grace & Li, Yiyang & Park, Leslie Y. & Zhao, Wei, 2017. "Global evidence on the distribution of GDP growth rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 468(C), pages 750-758.
    7. Reiner Franke & Frank Westerhoff, 2017. "Taking Stock: A Rigorous Modelling Of Animal Spirits In Macroeconomics," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1152-1182, December.

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