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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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Author Info
Jörg Döpke
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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Publisher Info
Article provided by Taylor and Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 18 (2004)
Issue (Month): 1 (January)
Pages: 1-23
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Handle: RePEc:taf:irapec:v:18:y:2004:i:1:p:1-23

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Keywords: Business-cycle Volatility Growth Empirical Test

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  2. 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 Economics Department. [Downloadable!]
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  8. Nauro F. Campos & Jeffrey B. Nugent, 2001. "Investment and Instability," Development and Comp Systems 0012015, EconWPA. [Downloadable!]
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  9. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
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  10. Dawson, John W. & Stephenson, E. Frank, 1997. "The link between volatility and growth: Evidence from the States," Economics Letters, Elsevier, vol. 55(3), pages 365-369, September. [Downloadable!] (restricted)
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  14. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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  15. Madsen, Jakob B., 2002. "The causality between investment and economic growth," Economics Letters, Elsevier, vol. 74(2), pages 157-163, January. [Downloadable!] (restricted)
  16. 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. [Downloadable!]
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