Are Average Growth Rate and Volatility Related?
AbstractThe 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 InfoPaper provided by Bank of Canada in its series Working Papers with number 06-24.
Length: 30 pages
Date of creation: 2006
Date of revision:
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Business fluctuations and cycles;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-21 (All new papers)
- NEP-CBA-2006-07-21 (Central Banking)
- NEP-MAC-2006-07-21 (Macroeconomics)
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