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Are Average Growth Rate and Volatility Related?

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  • Partha Chatterjee
  • Malik Shukayev

Abstract

The empirical relationship between the average growth rate and the volatility of growth rates, both over time and across countries, has important policy implications, which depend critically on the sign of the relationship. Following Ramey and Ramey (1995), a wide consensus has been building that, in the post-World War II data, the correlation is negative. The authors replicate Ramey and Ramey's result and find that it is not robust to either the definition of growth rate or the composition of the sample. They show that the use of log difference as growth rates, as in Ramey and Ramey, creates a strong bias towards finding a negative relationship. Further, they exhaustively investigate this relationship, for various growth rates, across time, countries, within groups of countries, and within states of the United States. The authors use different methods and control variables for this inquiry. Their analysis suggests that there is no significant relationship between the two variables in question.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 06-24.

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Length: 30 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:bca:bocawp:06-24

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Keywords: Business fluctuations and cycles;

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References

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  1. Eva Ortega & Nooman Rebei, 2006. "The Welfare Implications of Inflation versus Price-Level Targeting in a Two-Sector, Small Open Economy," Working Papers 06-12, Bank of Canada.
  2. Ingrid Lo & Stephen G. Sapp, 2006. "A Structural Error-Correction Model of Best Prices and Depths in the Foreign Exchange Limit Order Market," Working Papers 06-8, Bank of Canada.
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Citations

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Cited by:
  1. Barbara Annicchiarico & Alessandra Pelloni, 2013. "Productivity Growth and Volatility: How Important Are Wage and Price Rigidities?," Working Paper Series 02_13, The Rimini Centre for Economic Analysis.
  2. Carlos Esteban Posada & Camilo Morales J. & Andrés Felipe García, . "¿La inestabilidad frena el crecimiento económico?," Borradores de Economia 442, Banco de la Republica de Colombia.
  3. Debapriya Bhattacharya & Towfiqul Islam Khan, 2009. "Recent Monetary Policy Statement of Bangladesh Bank (July 2009): An Analytical Commentary," CPD Working Paper 82, Centre for Policy Dialogue (CPD).
  4. Berggren, Niclas & Bergh, Andreas & Bjørnskov, Christian, 2012. "The growth effects of institutional instability," Journal of Institutional Economics, Cambridge University Press, vol. 8(02), pages 187-224, June.
  5. Larry E. Jones & Rodolfo E. Manuelli & Henry E. Siu & Ennio Stacchetti, 2005. "Fluctuations in Convex Models of Endogenous Growth I: Growth Effects," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 780-804, October.
  6. Mallick, Debdulal, 2009. "Financial Development, Shocks, and Growth Volatility," MPRA Paper 17799, University Library of Munich, Germany.
  7. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
  8. Vicente Rios Ibáñez & Roberto Ezcurra, 2013. "Volatility and regional growth in Europe: Does space matter?," ERSA conference papers ersa13p133, European Regional Science Association.
  9. Luisanna Onnis & Patrizio Tirelli, 2010. "Challenging the popular wisdom. New estimates of the unobserved economy," Working Papers 184, University of Milano-Bicocca, Department of Economics, revised Apr 2010.

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