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The determinants of macroeconomic volatility: A Bayesian model averaging approach

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  • Spiliopoulos, Leonidas

Abstract

Bayesian model averaging is applied to robustly ascertain the determinants of various output volatility measures, including the downside semideviation of growth rates. Financial sophis- tication variables are found to have qualitatively different effects on volatility. The ratio of govern- ment expenditure to GDP exhibited a significant positive relationship with volatility and the trade share of GDP was positively related for a balanced dataset of developed and developing countries between 1960-89, and negatively related for developing countries between 1974-89. Other significant determinants were the black market premium, civil liberties, political rights, rule of law, and ratios of short-term debt and taxation to GDP.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26832.

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Date of creation: 18 Nov 2010
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Handle: RePEc:pra:mprapa:26832

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Keywords: Macroeconomic volatility; Growth; Government policy; Bayesian model averaging; Model selection;

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