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What Drives Output Volatility? The Role of Demographics and Government Size Revisited

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  • Martin Iseringhausen
  • Hauke Vierke

Abstract

This paper studies the determinants of output volatility in a panel of 22 OECD countries. In contrast to the existing literature, we avoid ad hoc estimates of volatility based on rolling windows, and we account for possible non-stationarity of the data. Specifically, output volatility is estimated by means of an unobserved components model where the volatility series is the outcome of both macroeconomic determinants and a latent integrated process. A Bayesian model selection is performed to test for the presence of the nonstationary component. The results point to demographics and government size as important determinants of macroeconomic (in)stability. In particular, a larger share of prime-age workers is associated with lower output volatility, while higher public expenditure increases volatility.

Suggested Citation

  • Martin Iseringhausen & Hauke Vierke, 2018. "What Drives Output Volatility? The Role of Demographics and Government Size Revisited," European Economy - Discussion Papers 2015 - 075, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:dispap:075
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    JEL classification:

    • I00 - Health, Education, and Welfare - - General - - - General

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