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Cross-Country Interactions, the Great Moderation and the Role of Output Volatility in Growth

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Abstract

This paper investigates the effect of output volatility and the great moderation on growth in a model that simultaneously accounts for cross-country interactions, structural breaks and heterogeneous effects. This is done by augmenting the univariate GARCH-M model of growth for each G7 country with cross-country weighted averages of growth and shift dummies. I find that volatility affects growth positively, that there is a great moderation in five of the G7 countries and that the great moderation has a negative effect on growth in all G7 countries. A simulation exercise shows that cross-country interactions are important in estimating the volatility effect.

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  • Steven Trypsteen, 2014. "Cross-Country Interactions, the Great Moderation and the Role of Output Volatility in Growth," Discussion Papers 2014/10, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  • Handle: RePEc:not:notcfc:14/10
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    Cited by:

    1. Steven Trypsteen, 2014. "The Importance of a Time-Varying Variance and Cross-Country Interactions in Forecast Models," Discussion Papers 2014/15, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. repec:kap:empiri:v:44:y:2017:i:3:d:10.1007_s10663-016-9336-4 is not listed on IDEAS

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    Keywords

    Cross-country interactions; Volatility; Growth; GARCH-M; The great moderation;

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