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The Decline in German Output Volatility: A Bayesian Analysis

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Author Info
Aßmann, Christian
Hogrefe, Jens
Liesenfeld, Roman
Abstract

Empirical evidence suggests a sharp volatility decline of the growth in U.S. gross domestic product (GDP) in the mid-1980s. Using Bayesian methods, we analyze whether a volatility reduction can also be detected for the German GDP. Since statistical inference for volatility processes critically depends on the specification of the conditional mean we assume for our volatility analysis different time series models for GDP growth. We find across all specifications evidence for an output stabilization around 1993, after the downturn following the boom associated with the German reunification. However, the different GDP models lead to alternative characterizations of this stabilization : In a linear AR model it shows up as smaller shocks hitting the economy, while regime switching models reveal as further sources for a stabilization, a narrowing gap between growth rates during booms and recessions or flatter trajectories characterizing the GDP growth rates. Furthermore, it appears that the reunification interrupted an output stabilization emerging already around 1987.

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics working papers with number 2006,02.

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Date of creation: 2005
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Handle: RePEc:zbw:cauewp:4134

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: business cycle models Gibbs sampling Markov Chain Monte Carlo regime switching structural breaks

Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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