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The growth-volatility relationship redux: what does volatility decomposition tell?

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  • Mallick Debdulal

    (Deakin University, Burwood, Victoria, Australia)

Abstract

This paper revisits the empirical relationship between volatility and long-run growth, but the key contribution lies in decomposing growth volatility into its business-cycle and trend components. This volatility decomposition also accounts for enormous heterogeneity among countries in terms of their long-run growth trajectories. We identify a negative effect of trend volatility, which we refer to as long-run volatility, on growth, but no effect of business-cycle volatility. However, if long-run volatility is omitted, there would be a spurious (negative) effect of business-cycle volatility. Our results draw attention to a crucial question about different volatility measures and their implications in macroeconomic analyses.

Suggested Citation

  • Mallick Debdulal, 2019. "The growth-volatility relationship redux: what does volatility decomposition tell?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(2), pages 1-20, June.
    • Handle: RePEc:bpj:bejmac:v:19:y:2019:i:2:p:20:n:8
    DOI: 10.1515/bejm-2018-0076
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    2. Chris Doucouliagos & Jack Hennessy & Debdulal Mallick, 2021. "Health aid, governance and infant mortality," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 184(2), pages 761-783, April.

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    More about this item

    Keywords

    business cycles; frequency; growth; volatility persistence; volatility;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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