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GDP Growth and the Interdependency of Volatility Spillovers

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  • Karunanayake, Indika
  • Valadkhani, Abbas
  • O’Brien, Martin

Abstract

This paper examines the dynamics of cross-country GDP volatility transmission and their conditional correlations. We use quarterly data (1961-2008) for Australia, Canada, the UK and the US to construct and estimate a multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model. According to the results from the mean growth equations, we identified significant cross-country GDP growth spillover among these countries. Furthermore, the growth volatility between the US and Canada indicates the highest conditional correlation. As expected, we also found that the shock influences are mainly exerted by the larger economies onto the smaller economies.

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File URL: http://mpra.ub.uni-muenchen.de/50398/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50398.

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Date of creation: 2012
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Publication status: Published in Australasian Accounting Business and Finance Journal 1.6(0212): pp. 83-96
Handle: RePEc:pra:mprapa:50398

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Keywords: GDP Volatility; MGARCH Models; Diagonal VECH Model; Constant Conditional Correlation Model.;

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  1. Glenn Otto & Graham Voss & Luke Willard, 2001. "Understanding OECD Output Correlations," RBA Research Discussion Papers, Reserve Bank of Australia rdp2001-05, Reserve Bank of Australia.
  2. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(1), pages 116-31, February.
  3. Massimiliano Caporin & Michael McAleer, 2009. "A Scientific Classification of Volatility Models," Documentos de Trabajo del ICAE, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico 0905, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  4. Boone, Laurence & Hall, Stephen G, 1999. "Stylized Facts of the Business Cycle Revisited: A Structural Modelling Approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 4(3), pages 253-68, July.
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  6. P J Perez & D R Osborn & M Artis, 2003. "The International Business Cycle in a Changing World: Volatility and the Propagation of Shocks," Centre for Growth and Business Cycle Research Discussion Paper Series, Economics, The Univeristy of Manchester 37, Economics, The Univeristy of Manchester.
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  12. Ray Barell & Sylvia Gottschalk, 2004. "The Volatility of the Output Gap in the G7," National Institute Economic Review, National Institute of Economic and Social Research, National Institute of Economic and Social Research, vol. 188(1), pages 100-107, April.
  13. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
  14. Francis X. Diebold & Kamil Yilmaz, 2008. "Macroeconomic Volatility and Stock Market Volatility, Worldwide," NBER Working Papers 14269, National Bureau of Economic Research, Inc.
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  16. Nigel Pain, 1996. "Continental Drift: European Integration and the Location of UK Foreign Direct Investment," NIESR Discussion Papers, National Institute of Economic and Social Research 230, National Institute of Economic and Social Research.
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