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Growth and volatility analysis using wavelets

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  • Maslova, Inga
  • Onder, Harun
  • Sanghi, Apurva

Abstract

The magnitude and persistence of growth in gross domestic product are topics of intense scrutiny by economists. Although the existing techniques provide a range of tools to study the nature of growth and volatility time series, these usually come with shortcomings, including the need to arbitrarily define acceleration spells, and focus on a particular frequency at a time. This paper explores the application of"wavelet-based"techniques to study the time-varying nature of growth and volatility. These techniques lend themselves to a more robust analysis of short-term and long-term determinants of growth and volatility than the traditional decomposition techniques, as demonstrated on a small sample of countries. In addition to having desirable technical advantages, such as localization in time and frequency and the ability to work with non-stationary series, these techniques also make it possible to accurately decompose the association between growth trajectories of different countries over different time horizons. Such"co-movement"analysis can provide policy makers with important insights on regional integration, growth poles, and how short and long term developments in other countries affect their domestic economy.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6578.

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Date of creation: 01 Aug 2013
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Handle: RePEc:wbk:wbrwps:6578

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Keywords: Economic Conditions and Volatility; Achieving Shared Growth; Science Education; Scientific Research&Science Parks; Emerging Markets;

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  1. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1216-1239, September.
  2. Pritchett, Lant, 2000. "Understanding Patterns of Economic Growth: Searching for Hills among Plateaus, Mountains, and Plains," World Bank Economic Review, World Bank Group, World Bank Group, vol. 14(2), pages 221-50, May.
  3. Craig Burnside & Alexandra Tabova, 2009. "Risk, Volatility, and the Global Cross-Section of Growth Rates," NBER Working Papers 15225, National Bureau of Economic Research, Inc.
  4. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1138-51, December.
  5. Ramsey, James B. & Lampart, Camille, 1998. "Decomposition Of Economic Relationships By Timescale Using Wavelets," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 2(01), pages 49-71, March.
  6. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 523-551, June.
  7. Dean Corbea & Sam Ouliaris & Peter C.B. Phillips, 1991. "A Reexamination of the Consumption Function Using Frequency Domain Regressors," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 997, Cowles Foundation for Research in Economics, Yale University.
  8. Corbae, D. & Ouliaris, S. & Phillips, P.C.B., 1991. "A Rexamination of the Consumption Function Using Frequency Domain Regressions," Working Papers, University of Iowa, Department of Economics 91-25, University of Iowa, Department of Economics.
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