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Is Volatility Good for Growth? Evidence from the G7

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Author Info

  • Elena Andreou

    ()
    (Department of Economics, University of Cyprus)

  • Alessandra Pelloni

    ()
    (Department of Economics, Law and Institutions, University of Rome "Tor Vergata")

  • Marianne Sensier

    ()
    (School of Social Sciences, University of Manchester)

Abstract

We provide empirical support for an analytical 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. Using 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 Tor Vergata University, CEIS in its series CEIS Research Paper with number 258.

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Length: 52 pages
Date of creation: 08 Jan 2013
Date of revision: 08 Jan 2013
Handle: RePEc:rtv:ceisrp:258

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
Phone: +390672595601
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Web page: http://www.ceistorvergata.it
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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

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Keywords: growth uncertainty; learning-by-doing; monetary uncertainty; multivariate GARCH-in-mean; nominal rigidity;

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References

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Citations

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Cited by:
  1. 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.
  2. 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.
  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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