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Declining output volatility in Germany: impulses, propagation, and the role of monetary policy

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Ulrich Fritsche
Vladimir Kuzin

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Abstract

The decline in output volatility in Germany is analysed. A lower level of variance in an autoregressive model of output growth can be either due to a change in the structure of the economy (a change in the propagation mechanism) or a reduced error term variance (reduced impulses). In Germany the decline output volatility is due to a decline in the persistence of the growth process. This is in contrast to the US results, where a break in the variance seems to dominate the decline in persistence. A change in the conduct of monetary policy (the establishment of another monetary policy regime) could be part of an explanation for the change in propagation. Stochastic simulations with a New Keynesian DSGE model support the hypothesis.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 21 (December)
Pages: 2445-2457
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Handle: RePEc:taf:applec:v:37:y:2005:i:21:p:2445-2457

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  1. Liesenfeld, Roman & Hogrefe, Jens & Aßmann, Christian, 2005. "The Decline in German Output Volatility: A Bayesian Analysis," Economics Working Papers 2006,02, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
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