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How Robust is the Empirical Link between Business-Cycle Volatility and Long-Run Growth in OECD Countries?

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  • Jorg Dopke
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    Abstract

    It has been argued that business-cycle volatility dampens growth. This paper argues that this is no stylised fact. A review of the literature reveals that arguments in favour of no, or even a positive, impact of business-cycle volatility on growth are as convincing as the arguments pointing in the other direction. Empirical evidence using annual data for 24 OECD countries from 1960 to 2000, based on robust cross-country regressions and panel models, raises doubts about a clear negative impact of volatility on growth. Moreover, the hypothesis of Granger-non-causality of business-cycle volatility for growth cannot be rejected.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/0269217032000148672
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

    Volume (Year): 18 (2004)
    Issue (Month): 1 ()
    Pages: 1-23

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    Handle: RePEc:taf:irapec:v:18:y:2004:i:1:p:1-23

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    Related research

    Keywords: Business-cycle volatility; growth; empirical test;

    References

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    1. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-51, December.
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    4. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
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    7. Joseph E. Stiglitz, 1993. "Endogenous Growth and Cycles," NBER Working Papers 4286, National Bureau of Economic Research, Inc.
    8. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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    13. Pete Richardson & Laurence Boone & Claude Giorno & Mara Meacci & David Rae & David Turner, 2000. "The Concept, Policy Use and Measurement of Structural Unemployment: Estimating a Time Varying NAIRU Across 21 OECD Countries," OECD Economics Department Working Papers 250, OECD Publishing.
    14. Madsen, Jakob B., 2002. "The causality between investment and economic growth," Economics Letters, Elsevier, vol. 74(2), pages 157-163, January.
    15. Kneller, Richard & Young, Garry, 2001. "Business Cycle Volatility, Uncertainty and Long-Run Growth," Manchester School, University of Manchester, vol. 69(5), pages 534-52, Special I.
    16. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
    17. Kevin B. Grier & Mark J. Perry, 2000. "The effects of real and nominal uncertainty on inflation and output growth: some garch-m evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 45-58.
    18. Beck, Thorsten & Levine, Ross, 2001. "Stock markets, banks, and growth : correlation or causality?," Policy Research Working Paper Series 2670, The World Bank.
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    Cited by:
    1. Mallick, Debdulal, 2009. "Financial Development, Shocks, and Growth Volatility," MPRA Paper 17799, University Library of Munich, Germany.
    2. Jetter, Michael, 2013. "Volatility and Growth: Governments are Key," IZA Discussion Papers 7826, Institute for the Study of Labor (IZA).
    3. Lemmens, Aurélie & Croux, Christophe & Dekimpe, Marnik G., 2008. "Measuring and testing Granger causality over the spectrum: An application to European production expectation surveys," International Journal of Forecasting, Elsevier, vol. 24(3), pages 414-431.

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