IDEAS home Printed from https://ideas.repec.org/a/jae/japmet/v23y2008i5p639-669.html
   My bibliography  Save this article

Are output growth-rate distributions fat-tailed? some evidence from OECD countries

Author

Listed:
  • Giorgio Fagiolo

    (Sant'Anna School of Advanced Studies, Pisa, Italy)

  • Mauro Napoletano
  • Andrea Roventini

Abstract

This work explores some distributional properties of aggregate output growth-rate time series. We show that, in the majority of OECD countries, output growth-rate distributions are well approximated by symmetric exponential power densities with tails much fatter than those of a Gaussian (but with finite moments of any order). Fat tails robustly emerge in output growth rates independently of: (i) the way we measure aggregate output; (ii) the family of densities employed in the estimation; (iii) the length of time lags used to compute growth rates. We also show that fat tails still characterize output growth-rate distributions even after one washes away outliers, autocorrelation and heteroscedasticity. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Giorgio Fagiolo & Mauro Napoletano & Andrea Roventini, 2008. "Are output growth-rate distributions fat-tailed? some evidence from OECD countries," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 639-669.
  • Handle: RePEc:jae:japmet:v:23:y:2008:i:5:p:639-669
    DOI: 10.1002/jae.1003
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1002/jae.1003
    File Function: Link to full text; subscription required
    Download Restriction: no

    File URL: http://qed.econ.queensu.ca:80/jae/2008-v23.5/
    File Function: Supporting data files and programs
    Download Restriction: no

    File URL: https://libkey.io/10.1002/jae.1003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64, Elsevier.
    2. Giulio Bottazzi & Alex Coad & Nadia Jacoby & Angelo Secchi, 2011. "Corporate growth and industrial dynamics: evidence from French manufacturing," Applied Economics, Taylor & Francis Journals, vol. 43(1), pages 103-116.
    3. Rudebusch, Glenn D, 1993. "The Uncertain Unit Root in Real GNP," American Economic Review, American Economic Association, vol. 83(1), pages 264-272, March.
    4. Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.),Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677, Elsevier.
    5. Murray, Christian J. & Nelson, Charles R., 2000. "The uncertain trend in U.S. GDP," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 79-95, August.
    6. Boyan Jovanovic & Rafael Rob, 1987. "Demand-Driven Innovation and Spatial Competition Over Time," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 63-72.
    7. Loretan, Mico & Phillips, Peter C. B., 1994. "Testing the covariance stationarity of heavy-tailed time series: An overview of the theory with applications to several financial datasets," Journal of Empirical Finance, Elsevier, vol. 1(2), pages 211-248, January.
    8. Dongfeng Fu & Fabio Pammolli & S. V. Buldyrev & Massimo Riccaboni & Kaushik Matia & Kazuko Yamasaki & H. E. Stanley, 2005. "The Growth of Business Firms: Theoretical Framework and Empirical Evidence," Papers physics/0512005, arXiv.org.
    9. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    10. Potter, Simon M, 1995. "A Nonlinear Approach to US GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 109-125, April-Jun.
    11. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
    12. Steven N. Durlauf, 1993. "Nonergodic Economic Growth," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 349-366.
    13. Canova, Fabio, 1998. "Detrending and business cycle facts: A user's guide," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 533-540, May.
    14. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Papers cond-mat/9804100, arXiv.org.
    15. Canova, Fabio, 1998. "Detrending and business cycle facts," Journal of Monetary Economics, Elsevier, vol. 41(3), pages 475-512, May.
    16. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages 211-230, January.
    17. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    18. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230, National Bureau of Economic Research, Inc.
    19. Kim, Chang-Jin & Nelson, Charles R & Piger, Jeremy, 2004. "The Less-Volatile U.S. Economy: A Bayesian Investigation of Timing, Breadth, and Potential Explanations," Journal of Business & Economic Statistics, American Statistical Association, vol. 22(1), pages 80-93, January.
    20. Potter, Simon M, 1999. "Nonlinear Time Series Modelling: An Introduction," Journal of Economic Surveys, Wiley Blackwell, vol. 13(5), pages 505-528, December.
    21. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier.
    22. Dan Ben-David & Robin L. Lumsdaine & David H. Papell, 2003. "Unit roots, postwar slowdowns and long-run growth: Evidence from two structural breaks," Empirical Economics, Springer, vol. 28(2), pages 303-319, April.
    23. Brock, W A, 1999. "Scaling in Economics: A Reader's Guide," Industrial and Corporate Change, Oxford University Press, vol. 8(3), pages 409-446, September.
    24. Thomas Lux, 2001. "The limiting extremal behaviour of speculative returns: an analysis of intra-daily data from the Frankfurt Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 11(3), pages 299-315.
    25. Sandro Sapio & Grid Thoma, 2006. "The Growth of Industrial Sectors: Theoretical Insights and Empirical Evidence from U.S. Manufacturing," LEM Papers Series 2006/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    26. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
    27. Giulio Bottazzi & Angelo Secchi, 2006. "Maximum Likelihood Estimation of the Symmetric and Asymmetric Exponential Power Distribution," LEM Papers Series 2006/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    28. Scheinkman, Jose A & Woodford, Michael, 1994. "Self-Organized Criticality and Economic Fluctuations," American Economic Review, American Economic Association, vol. 84(2), pages 417-421, May.
    29. Bottazzi, Giulio & Secchi, Angelo, 2003. "Why are distributions of firm growth rates tent-shaped?," Economics Letters, Elsevier, vol. 80(3), pages 415-420, September.
    30. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
    31. Charolina CASTALDI & Giovanni Dosi, 2004. "Income Levels and Income Growth: Some New Cross-Country Evidence and some Interpretative Puzzles," DEGIT Conference Papers c009_038, DEGIT, Dynamics, Economic Growth, and International Trade.
    32. Balke, Nathan S. & Fomby, Thomas B., 1991. "Shifting trends, segmented trends, and infrequent permanent shocks," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 61-85, August.
    33. Forni, Mario & Lippi, Marco, 1999. "Aggregation of linear dynamic microeconomic models," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 131-158, February.
    34. Temple, Jonathan, 2000. "Growth Regressions and What the Textbooks Don't Tell You," Bulletin of Economic Research, Wiley Blackwell, vol. 52(3), pages 181-205, July.
    35. Brock, William A. & Sayers, Chera L., 1988. "Is the business cycle characterized by deterministic chaos?," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 71-90, July.
    36. Canning, D. & Amaral, L. A. N. & Lee, Y. & Meyer, M. & Stanley, H. E., 1998. "Scaling the volatility of GDP growth rates," Economics Letters, Elsevier, vol. 60(3), pages 335-341, September.
    37. Edoardo Gaffeo & Marco Gallegati & Mauro Gallegati, 2005. "Requiem for the unit root in per capita real GDP? Additional evidence from historical data," Empirical Economics, Springer, vol. 30(1), pages 37-63, January.
    38. Giulio Bottazzi & Angelo Secchi, 2003. "Common Properties and Sectoral Specificities in the Dynamics of U.S. Manufacturing Companies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 23(3_4), pages 217-232, December.
    39. Giulio Bottazzi, 2004. "Subbotools User's Manual," LEM Papers Series 2004/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    40. Nunes Amaral, Luís A & Buldyrev, Sergey V & Havlin, Shlomo & Maass, Philipp & Salinger, Michael A & Eugene Stanley, H & Stanley, Michael H.R, 1997. "Scaling behavior in economics: The problem of quantifying company growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 244(1), pages 1-24.
    41. Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the distribution of firm growth rates," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 235-256, June.
    42. Silva, A. Christian & Prange, Richard E. & Yakovenko, Victor M., 2004. "Exponential distribution of financial returns at mesoscopic time lags: a new stylized fact," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 227-235.
    43. Drees, Holger & Kaufmann, Edgar, 1998. "Selecting the optimal sample fraction in univariate extreme value estimation," Stochastic Processes and their Applications, Elsevier, vol. 75(2), pages 149-172, July.
    44. McKay, Alisdair & Reis, Ricardo, 2008. "The brevity and violence of contractions and expansions," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 738-751, May.
    45. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    46. Zaman, Asad & Rousseeuw, Peter J. & Orhan, Mehmet, 2001. "Econometric applications of high-breakdown robust regression techniques," Economics Letters, Elsevier, vol. 71(1), pages 1-8, April.
    47. Giulio Bottazzi & Angelo Secchi, 2003. "Sectoral Specifities in the Dynamics of U.S. Manufacturing Firms," LEM Papers Series 2003/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    48. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    49. John H. Cochrane, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 241-265.
    50. Jonathan R. W. Temple, 1998. "Robustness tests of the augmented Solow model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(4), pages 361-375.
    51. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:spo:wpecon:info:hdl:2441/9848 is not listed on IDEAS
    2. Matthias Duschl & Thomas Brenner, 2013. "Characteristics of regional industry-specific employment growth rates' distributions," Papers in Regional Science, Wiley Blackwell, vol. 92(2), pages 249-270, June.
    3. Matthias Duschl & Thomas Brenner, 2011. "Characteristics of Regional Industry-specific Employment Growth – Empirical Evidence for Germany," Working Papers on Innovation and Space 2011-07, Philipps University Marburg, Department of Geography.
    4. Carolina Castaldi & Giovanni Dosi, 2007. "The patterns of output growth of firms and countries: new evidence on scale invariances and scale specificities," LEM Papers Series 2007/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    5. Thomas Brenner & Matthias Duschl, 2014. "Modelling Firm and Market Dynamics - A Flexible Model Reproducing Existing Stylized Facts," Working Papers on Innovation and Space 2014-07, Philipps University Marburg, Department of Geography.
    6. Carolina Castaldi & Giovanni Dosi, 2009. "The patterns of output growth of firms and countries: Scale invariances and scale specificities," Empirical Economics, Springer, vol. 37(3), pages 475-495, December.
    7. Perron, Pierre & Wada, Tatsuma, 2009. "Let's take a break: Trends and cycles in US real GDP," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 749-765, September.
    8. Domenico Delli Gatti & Mauro Gallegati, 2004. "Weird Ties? : Growth, Cycles and Firms Dynamics in an Agent Based-Model with Financial Market Imperfections," Computing in Economics and Finance 2004 288, Society for Computational Economics.
    9. Dosi, Giovanni & Roventini, Andrea & Russo, Emanuele, 2019. "Endogenous growth and global divergence in a multi-country agent-based model," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 101-129.
    10. Williams, Michael A. & Pinto, Brijesh P. & Park, David, 2015. "Global evidence on the distribution of firm growth rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 432(C), pages 102-107.
    11. Emara, Noha & Ma, Jinpeng, 2019. "An Analysis of the Seasonal Cycle and the Business Cycle," MPRA Paper 99310, University Library of Munich, Germany.
    12. Sandro Sapio & Grid Thoma, 2006. "The Growth of Industrial Sectors: Theoretical Insights and Empirical Evidence from U.S. Manufacturing," LEM Papers Series 2006/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    13. Carolina Castaldi & Sandro Sapio, 2008. "Growing like mushrooms? Sectoral evidence from four large European economies," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 509-527, August.
    14. Thomas Brenner & Matthias Duschl, 2018. "Modeling Firm and Market Dynamics: A Flexible Model Reproducing Existing Stylized Facts on Firm Growth," Computational Economics, Springer;Society for Computational Economics, vol. 52(3), pages 745-772, October.
    15. Baele, Lieven & Bekaert, Geert & Cho, Seonghoon & Inghelbrecht, Koen & Moreno, Antonio, 2015. "Macroeconomic regimes," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 51-71.
    16. Christoph Hanck & Robert Czudaj, 2015. "Nonstationary-volatility robust panel unit root tests and the great moderation," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 99(2), pages 161-187, April.
    17. G. Fagiolo & A. Roventini., 2009. "On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
    18. Murray, Christian J. & Nelson, Charles R., 2000. "The uncertain trend in U.S. GDP," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 79-95, August.
    19. Aadland, David, 2005. "Detrending time-aggregated data," Economics Letters, Elsevier, vol. 89(3), pages 287-293, December.
    20. Abadir, Karim M. & Caggiano, Giovanni & Talmain, Gabriel, 2013. "Nelson–Plosser revisited: The ACF approach," Journal of Econometrics, Elsevier, vol. 175(1), pages 22-34.
    21. 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.

    More about this item

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Are output growth-rate distributions fat-tailed? some evidence from OECD countries (Journal of Applied Econometrics 2008) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:23:y:2008:i:5:p:639-669. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.interscience.wiley.com/jpages/0883-7252/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/0883-7252/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.