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Output Volatility in Australia

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Author Info
Phil Bodman () (MRG - School of Economics, The University of Queensland)

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Abstract

A number of papers have documented a significant decline in real GDP volatility in several major OECD economies. Some authors have presented evidence to suggest that this is the outcome of a one-off structural break from a high to low volatility state whilst others have estimated regime switching models that indicate low volatility regime states have dominated in recent years. This paper provides a different perspective on volatility decline. Evidence is provided of a smoother, longer term decline that would appear to be the result of many more general changes in the economy over time, rather than particular events, such as abrupt changes in inventory management methods, the floating of exchange rates or changes to the conduct of monetary policy. The paper also provides estimates of various GARCH models of real GDP growth to further examine shorter term volatility features of the economy associated with the business cycle. A linear trend term is maintained in all models of the conditional variance to account for the general long-term decline in volatility and evidence is provided of significant business cycle effects, including asymmetries that suggest recessions are times of higher output volatility than economic expansions.

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Paper provided by School of Economics, University of Queensland, Australia in its series MRG Discussion Paper Series with number 0106.

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Handle: RePEc:qld:uqmrg6:01

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References listed on IDEAS
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  1. Ho, Kin-Yip & Tsui, Albert K. C., 2003. "Asymmetric volatility of real GDP: some evidence from Canada, Japan, the United Kingdom and the United States," Japan and the World Economy, Elsevier, vol. 15(4), pages 437-445, December. [Downloadable!] (restricted)
  2. Robert J. Gordon, 2005. "What Caused the Decline in U.S. Business Cycle Volatility?," NBER Working Papers 11777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. John Simon, 2001. "The Decline in Australian Output Volatility," RBA Research Discussion Papers rdp2001-01, Reserve Bank of Australia. [Downloadable!]
  4. repec:att:wimass:199520 is not listed on IDEAS
  5. Bruce E. Hansen, 1995. "Approximate Asymptotic P-Values for Structural Change Tests," Boston College Working Papers in Economics 297., Boston College Department of Economics. [Downloadable!]
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  6. Peel, D A & Speight, A E H, 1998. "The Variance of Economic Activity over the Business Cycle: Some Further Evidence," Applied Economics Letters, Taylor and Francis Journals, vol. 5(11), pages 669-73, November. [Downloadable!] (restricted)
  7. Flood, Darren & Lowe, Philip, 1995. "Inventories and the Business Cycle," The Economic Record, The Economic Society of Australia, vol. 71(212), pages 27-39, March.
  8. Paul Cashin & Sam Ouliaris, 2004. "Key Features of Australian Business Cycles," Australian Economic Papers, Blackwell Publishing, vol. 43(1), pages 39-58, 03. [Downloadable!] (restricted)
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  9. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2006. "Assessing the Sources of Changes in the Volatility of Real Growth," NBER Working Papers 11946, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. W. A. Broock & J. A. Scheinkman & W. D. Dechert & B. LeBaron, 1996. "A test for independence based on the correlation dimension," Econometric Reviews, Taylor and Francis Journals, vol. 15(3), pages 197-235. [Downloadable!] (restricted)
  11. Penelope A. Smith & Peter M. Summers, 2002. "Regime Switches in GDP Growth and Volatility: Some International Evidence and Implications for Modelling Business Cycles," Melbourne Institute Working Paper Series wp2002n21, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
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