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Assessing the Sources of Changes in the Volatility of Real Growth

  • Stephen G. Cecchetti
  • Alfonso Flores-Lagunes
  • Stefan Krause

In much of the world, growth is more stable than it once was. Looking at a sample of twentyfive countries, we find that in sixteen, real GDP growth is less volatile today than it was twenty years ago. And these declines are large, averaging more than fifty per cent. What accounts for the fact that real growth has been more stable in recent years? We survey the evidence and competing explanations and find support for the view that improved inventory management policies, coupled with financial innovation, adopting an inflation targeting scheme and increased central bank independence have all been associated with more stable real growth. Furthermore, we find weak evidence suggesting that increased commercial openness has coincided with increased output volatility.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11946.

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Date of creation: Jan 2006
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Publication status: published as Stephen G Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2005. "Assessing the Sources of Changes in the Volatility of Real Growth," RBA Annual Conference Volume, in: Christopher Kent & David Norman (ed.), The Changing Nature of the Business Cycle Reserve Bank of Australia.
Handle: RePEc:nbr:nberwo:11946
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