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Output Volatility, Economic Growth, and Cross-Country Spillovers: New Evidence for the G7 Countries

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  • Nikolaos Antonakakis

    ()
    (Department of Economics, Vienna University of Economics and Business)

  • Harald Badinger

    ()
    (Department of Economics, Vienna University of Economics and Business)

Abstract

This paper considers the linkages between output growth and output volatility for the sample of G7 countries over the period 1958M2-2011M7, thereby paying particular attention to spillovers within and between countries. Using the VAR-based spillover index approach by Diebold and Yilmaz (2012), we identify several empirical regularities: i) output growth and volatility are highly intertwined, with spillovers taking place into all four directions; ii) the importance of spillovers has increased after the mid 1980s and reached unprecedented levels during the recent financial and economic crisis; iii) the US has been the largest transmitter of output and volatility shocks to other countries. Generalized impulse response analyses point to moderate growth-growth spillovers and sizable volatility-volatility spillovers across countries, suggesting that volatility shocks quintuplicate in the long run. The cross-variable effects turn out negative: volatilty shocks lead to lower economic growth, growth shocks tend to reduce output volatility. Our findings underline the increased vulnerability of the G7 countries to destabilizing shocks and their detrimental effects on economic growth, which are sizeably amplified through international spillover effects and the associated repercussions.

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Bibliographic Info

Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp141.

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Date of creation: May 2012
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Handle: RePEc:wiw:wiwwuw:wuwp141

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Keywords: Output growth; Output growth volatility; Spillover; Vector autoregression; Variance decomposition; Impulse response;

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Cited by:
  1. Nikolaos Antonakakis & Max Breitenlechner & Johann Scharler, 2014. "How Strongly are Business Cycles and Financial Cycles Linked in the G7 Countries?," Working Papers 2014-07, Faculty of Economics and Statistics, University of Innsbruck.

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