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The Great Moderation Flattens Fat Tails: Disappearing Leptokurtosis

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Author Info
WenShwo Fang (Feng Chia University)
Stephen M. Miller (University of Nevada, Las Vegas, and University of Connecticut)
ChunShen Lee (Feng Chia University)

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Abstract

Recently, Fagiolo et al. (2008) find fat tails of economic growth rates after adjusting outliers, autocorrelation and heteroskedasticity. This paper employs US quarterly real output growth, showing that this finding of fat tails may reflect the Great Moderation. That is, leptokurtosis disappears after GARCH adjustment once we incorporate the break in the variance equation.

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File URL: http://www.econ.uconn.edu/working/2008-48.pdf
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Publisher Info
Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2008-48.

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Date of creation: Dec 2008
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Handle: RePEc:uct:uconnp:2008-48

Note: 10 pages
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Related research
Keywords: Real GDP growth; the Great Moderation; leptokurtosis; GARCH models;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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References listed on IDEAS
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  1. Hillebrand, Eric, 2005. "Neglecting parameter changes in GARCH models," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 121-138. [Downloadable!] (restricted)
  2. Franses, Philip Hans & Ghijsels, Hendrik, 1999. "Additive outliers, GARCH and forecasting volatility," International Journal of Forecasting, Elsevier, vol. 15(1), pages 1-9, February. [Downloadable!] (restricted)
  3. Kramer, Walter & Azamo, Baudouin Tameze, 2007. "Structural change and estimated persistence in the GARCH(1,1)-model," Economics Letters, Elsevier, vol. 97(1), pages 17-23, October. [Downloadable!] (restricted)
    Other versions:
  4. Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports 41, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  5. Jushan Bai & Pierre Perron, 2003. "Critical values for multiple structural change tests," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 72-78, 06. [Downloadable!] (restricted)
  6. Tim Bollerslev & Jeffrey Wooldridge, 1992. "Quasi-maximum likelihood estimation and inference in dynamic models with time-varying covariances," Econometric Reviews, Taylor and Francis Journals, vol. 11(2), pages 143-172. [Downloadable!] (restricted)
  7. Giorgio Fagiolo & Mauro Napoletano & Andrea Roventini, 2006. "Are Output Growth-Rate Distributions Fat-Tailed? Some Evidence from OECD Countries," LEM Papers Series 2006/23, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
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  8. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  9. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22. [Downloadable!]
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  10. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
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