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How Fat-Tailed is US Output Growth?

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  • Reiner Franke

Abstract

Several studies have recently rejected the common hypothesis that aggregate output is normally distributed. The present paper reconsiders this issue for US output growth. To this end, it focusses on the shape parameter b of the exponential power distribution (EPD), the two polar values of which constitute the normal distribution and the Laplace distribution with its fatter tails, respectively. The paper first warns against premature conclusions that neglect a structural break in output volatility. On the basis of a battery of Monte Carlo experiments, it is then found out that the results strongly depend on which subperiod is considered, the Great Inflation (GI) or the Great Moderation (GM) period, and which data are referred to, the growth rates of GDP, firm sector output, and quarterly or monthly industrial production (IP). Here, only quarterly IP can be said to exhibit fat tails in GI as well as GM; other evidence is mixed.

Suggested Citation

  • Reiner Franke, 2015. "How Fat-Tailed is US Output Growth?," Metroeconomica, Wiley Blackwell, vol. 66(2), pages 213-242, May.
  • Handle: RePEc:bla:metroe:v:66:y:2015:i:2:p:213-242
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    File URL: http://hdl.handle.net/10.1111/meca.12067
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    References listed on IDEAS

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    12. repec:hal:journl:hal-00642696 is not listed on IDEAS
    13. Giorgio Fagiolo & Mauro Napoletano & Marco Piazza & Andrea Roventini, 2009. "Detrending and the Distributional Properties of U.S. Output Time Series," Economics Bulletin, AccessEcon, vol. 29(4), pages 3155-3161.
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    Cited by:

    1. Sandro Claudio Lera & Didier Sornette, 2017. "GDP growth rates as confined L\'evy flights," Papers 1709.05594, arXiv.org.
    2. Williams, Michael A. & Baek, Grace & Li, Yiyang & Park, Leslie Y. & Zhao, Wei, 2017. "Global evidence on the distribution of GDP growth rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 468(C), pages 750-758.
    3. repec:bla:jecsur:v:31:y:2017:i:5:p:1152-1182 is not listed on IDEAS
    4. repec:bla:metroe:v:68:y:2017:i:3:p:465-499 is not listed on IDEAS

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