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Econometric history of the growth–volatility relationship in the USA: 1919–2017

Author

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  • Amélie Charles

    (Audencia Business School, 8 Route de la Jonelière, 44312, Nantes Cedex 3, France)

  • Olivier Darné

    (LEMNA, University of Nantes, Chemin de la Censive du Tertre, BP 52231, 44322, Nantes, France)

Abstract

In this paper, we investigate the relationship between output volatility and growth using the standard GARCH-M framework and the US monthly industrial production index (IPI) for the period January 1919–December 2017, by taking into account the presence of shocks and variance changes. The results show that the IPI growth is strongly affected by large shocks which are associated with strikes in some industries, recessions, World War II and natural disasters. We also identify several subperiods with different level of volatility where the volatility declines along the subperiods, with the pre-WWII period (1919–1946) the highest volatile period and the aftermath period of the GFC (2010–2017) the lowest volatile period. We find no evidence of relationship between output volatility and its growth during the full sample 1919–2017 and also for all the subperiods. From a macroeconomic point of view, this implies that economic performances, as measured by IPI growth, do not depend on the uncertainty as measured by IPI volatility.

Suggested Citation

  • Amélie Charles & Olivier Darné, 2021. "Econometric history of the growth–volatility relationship in the USA: 1919–2017," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 15(2), pages 419-442, May.
    • Handle: RePEc:afc:cliome:v:15:y:2021:i:2:p:419-442
    DOI: 10.1007/s11698-020-00209-y
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    More about this item

    Keywords

    Growth–volatility relationship; Breaks; Shock; GARCH-M model; Cliometrics;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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