Testing for Volatility Changes in U.S. Macroeconomic Time Series

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Testing for Volatility Changes in U.S. Macroeconomic Time Series

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Marianne Sensier (School of Economic Studies, University of Manchester)
Dick van Dijk (Econometric Institute, Erasmus University Rotterdam)

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Abstract

We test for a change in the volatility of 214 U.S. macroeconomic time series over the period 1959-1999. We find that approximately 80% of these series have experienced a break in unconditional volatility during this period. Even though more than half of the series experienced a break in conditional mean, most of the reduction in volatility appears to be due to changes in conditional volatility. Our results are robust to controlling for business cycle nonlinearity in both mean and variance. Volatility changes are more appropriately characterized as instantaneous breaks than as gradual changes. Nominal variables such as inflation and interest rates experienced multiple volatility breaks and witnessed temporary increases in volatility during the 1970s. On this evidence, we conclude that the increased stability of economic fluctuations is widespread. Copyright (c) 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 86 (2004)
Issue (Month): 3 (08)
Pages: 833-839
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Handle: RePEc:tpr:restat:v:86:y:2004:i:3:p:833-839

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Paper
- M Sensier & D van Dijk, 2003. "Testing for Volatility Changes in US Macroeconomic Time Series," Centre for Growth and Business Cycle Research Discussion Paper Series 36, Economics, The Univeristy of Manchester. [Downloadable!]

References listed on IDEAS
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