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Short-term Volatility versus Long-term Growth: Evidence in US Macroeconomic Time Series

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  • Sensier, Marianne

    (University of Manchester)

  • Dick van Dijk

    (Erasmus University Rotterdam)

Abstract

We test for a change in the volatility of 215 US macroeconomic time series over the period 1960-1996. We find that about 90% of these series have experienced a break in volatility during this period. This result is robust to controlling for instability in the mean and business cycle nonlinearities. Real variables have seen a reduction in volatility since the early 1980s, which is accompanied by lower but steadier output growth. Furthermore, nominal variables have seen temporary increases in their volatility around the early 1980s. This suggests the existence of a trade-off between short-term volatility and the long-term pattern of growth.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 164.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:164

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Cited by:
  1. Jean-Yves Pitarakis, 2004. "Least squares estimation and tests of breaks in mean and variance under misspecification," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 32-54, 06.
  2. Jonathan McCarthy & Egon Zakrajsek, 2003. "Inventory dynamics and business cycles: what has changed?," Finance and Economics Discussion Series 2003-26, Board of Governors of the Federal Reserve System (U.S.).
  3. Lazzarini, S. G. & Madalozzo, R. C & Artes, R. & Siqueira, J. O., 2004. "Measuring trust: An experiment in Brazil," Insper Working Papers wpe_42, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  4. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  5. Marcelle Chauvet & Simon Potter, 2001. "Recent changes in the U.S. business cycle," Staff Reports 126, Federal Reserve Bank of New York.
  6. Herrera, Ana Maria & Pesavento, Elena, 2005. "The Decline in U.S. Output Volatility: Structural Changes and Inventory Investment," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 462-472, October.
  7. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 9-56.

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