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The Decline in German Output Volatility: A Bayesian Analysis

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  • Liesenfeld, Roman
  • Hogrefe, Jens
  • Aßmann, Christian

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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Bibliographic Info

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

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Citations

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Cited by:
  1. Hogrefe, Jens, 2007. "The yield spread and GDP growth - Time Varying Leading Properties and the Role of Monetary Policy," Economics Working Papers 2007,12, Christian-Albrechts-University of Kiel, Department of Economics.
  2. Strotmann, Harald & Döpke, Jörg & Buch, Claudia M., 2006. "Does trade openness increase firm-level volatility?," Discussion Paper Series 1: Economic Studies 2006,40, Deutsche Bundesbank, Research Centre.
  3. Sandra Bilek-Steindl, 2011. "On the Change in the Austrian Business Cycle," WIFO Working Papers 384, WIFO.
  4. Claudia Buch & Martin Schlotter, 2013. "Regional origins of employment volatility: evidence from German states," Empirica, Springer, vol. 40(1), pages 1-19, February.

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