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Is Volatility Good for Growth? Evidence from the G7

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  • Elena Andreou
  • Alessandra Pelloni
  • Marianne Sensier

Abstract

We provide empirical support for a DSGE model with nominal wage stickiness where growth is driven by learning-by-doing and money shocks and their variance are allowed to impact on long-run output growth. In our theoretical model the variance of monetary shocks has a negative effect on growth, while output volatility is good for growth as a positive relationship exists. Utilising a bivariate GARCH-M model we test the empirical conditional mean and variance relationships of nominal money and production growth rates in the G7 countries. We corroborate the theoretical model predictions with evidence from Bonferroni multiple tests across the G7.

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Bibliographic Info

Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 97.

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Length: 33 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:man:cgbcrp:97

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Cited by:
  1. Barbara Annicchiarico & Luisa Corrado & Alessandra Pelloni, 2008. "Long-Term Growth and Short-Term Volatility: The Labour Market Nexus," CDMA Working Paper Series 200806, Centre for Dynamic Macroeconomic Analysis.
  2. Barbara Annicchiarico & Alessandra Pelloni, 2014. "Productivity growth and volatility: how important are wage and price rigidities?," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 306-324, January.
  3. Oikawa, Koki, 2010. "Uncertainty-driven growth," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 897-912, May.

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