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Short-term volatility versus long-term growth: evidence in US macroeconomic time series

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  • Sensier, M.
  • van Dijk, D.J.C.

Abstract

We test for a change in the volatility of 215 US macroeconomic time series over the period 1960-1996. We find that about 90\\% of these series have experienced a break in volatility during this period. This result is robust to controlling for instability in the mean and business cycle nonlinearities. Real variables have seen a reduction in volatility since the early 1980s, which is accompanied by lower but steadier output growth. Furthermore, nominal variables have seen temporary increases in their volatility around the early 1980s. This suggests the existence of a trade-off between short-term volatility and the long-term pattern of growth.

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File URL: http://repub.eur.nl/pub/1674/feweco20010330093942.pdf
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Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 2001-11.

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Date of creation: 30 Mar 2001
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Handle: RePEc:ems:eureir:1674
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Keywords: Business cycle nonlinearity; Structural change tests; Volatility; growth;

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Cited by:

  1. Jonathan McCarthy & Egon Zakrajsek, 2002. "Inventory dynamics and business cycles: what has changed?," Staff Reports 156, Federal Reserve Bank of New York.
  2. Marcelle Chauvet & Simon M. Potter, 2001. "Recent changes in the U.S. business cycle," Staff Reports 126, Federal Reserve Bank of New York.
  3. Eddie Gerba, 2015. "Have the US macro-financial linkages changed? The balance sheet dimension," LSE Research Online Documents on Economics 59886, London School of Economics and Political Science, LSE Library.
  4. Jean-Yves Pitarakis, 2003. "Least Squares Estimation and Tests of Breaks in Mean and Variance under Misspecification," Econometrics 0312004, EconWPA.
  5. 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.
  6. Eddie Gerba, 2014. "Have the US macro-financial linkages changed? the balance sheet dimension," LSE Research Online Documents on Economics 56407, London School of Economics and Political Science, LSE Library.
  7. Herrera, Ana Maria & Pesavento, Elena, 2005. "The Decline in U.S. Output Volatility: Structural Changes and Inventory Investment," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 462-472, October.
  8. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 9-56.
  9. Lazzarini, S. G. & Madalozzo, R. C & Artes, R. & Siqueira, J. O., 2004. "Measuring trust: An experiment in Brazil," Insper Working Papers wpe_42, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  10. Laurini, Márcio P. & Caldeira, João F., 2016. "A macro-finance term structure model with multivariate stochastic volatility," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 68-90.

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