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Short-term volatility versus long-term growth: evidence in US macroeconomic time series

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  • Sensier, M.
  • van Dijk, D.J.C.

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 Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 2001-11.

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Date of creation: 30 Mar 2001
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Handle: RePEc:ems:eureir:1674

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Related research

Keywords: Business cycle nonlinearity; Structural change tests; Volatility; growth;

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  16. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9552, Universite de Montreal, Departement de sciences economiques.
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  18. Ramsey, James B & Rothman, Philip, 1996. "Time Irreversibility and Business Cycle Asymmetry," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(1), pages 1-21, February.
  19. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 13(03), pages 315-352, June.
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Cited by:
  1. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
  2. Ana Maria Herrero & Elena Pesavento, 2003. "The Decline in U.S. Output Volatility: Structural Changes and Inventory Investment," Emory Economics, Department of Economics, Emory University (Atlanta) 0301, Department of Economics, Emory University (Atlanta).
  3. Marcelle Chauvet & Simon Potter, 2001. "Recent changes in the U.S. business cycle," Staff Reports, Federal Reserve Bank of New York 126, Federal Reserve Bank of New York.
  4. Jean-Yves Pitarakis, 2004. "Least squares estimation and tests of breaks in mean and variance under misspecification," Econometrics Journal, Royal Economic Society, Royal Economic Society, vol. 7(1), pages 32-54, 06.
  5. Lazzarini, S. G. & Madalozzo, R. C & Artes, R. & Siqueira, J. O., 2004. "Measuring trust: An experiment in Brazil," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_42, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  6. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 9-56.
  7. JONATHAN McCARTHY & EGON ZAKRAJSEK, 2007. "Inventory Dynamics and Business Cycles: What Has Changed?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(2-3), pages 591-613, 03.

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