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Declining Output Volatility: What Role for Structural Change?

Author

Listed:
  • Christopher Kent

    (Reserve Bank of Australia)

  • Kylie Smith

    (Reserve Bank of Australia)

  • James Holloway

    (Reserve Bank of Australia)

Abstract

The decline in output volatility in a number of countries over the past few decades has been well-documented, though less agreement has been reached about the causes of this decline. In this paper, we use a panel of data from 20 OECD countries to see if there is a role for various indicators of structural reform in explaining the general decline in output volatility. We suggest that reforms in product and labour markets can reduce volatility of aggregate output by encouraging productive resources to shift more readily in response to differential shocks across firms and sectors. In contrast to other studies, we include direct measures of product market regulations and monetary policy regimes as indicators of structural reform. We find that less product market regulation and stricter monetary policy regimes have played a role in reducing output volatility. Our estimates are reasonably robust to a number of alternative specifications, including those that attempt to control for a possible trend in common (unexplained) innovations to output volatility such as a possible decline in the magnitude of global shocks.

Suggested Citation

  • Christopher Kent & Kylie Smith & James Holloway, 2005. "Declining Output Volatility: What Role for Structural Change?," RBA Research Discussion Papers rdp2005-08, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2005-08
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jordi Galí & Thijs van Rens, 2008. "The vanishing procyclicality of labor productivity," Economics Working Papers 1230, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2010.
    2. Chenaf-Nicet, Dalila & Rougier, Eric, 2016. "The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements," International Economics, Elsevier, vol. 145(C), pages 66-91.
    3. Girijasankar Mallik & Anis Chowdhury, 2011. "Effect of inflation uncertainty, output uncertainty and oil price on inflation and growth in Australia," Journal of Economic Studies, Emerald Group Publishing, vol. 38(4), pages 414-429, September.
    4. Dan Andrews & Daniel Rees, 2009. "Macroeconomic Volatility and Terms of Trade Shocks," RBA Research Discussion Papers rdp2009-05, Reserve Bank of Australia.
    5. Stefan Krause & Felix Rioja, 2006. "Financial Development and Monetary Policy Efficiency," Emory Economics 0613, Department of Economics, Emory University (Atlanta).
    6. Albulescu Claudiu Tiberiu, 2007. "The Impact of the New Financial Products on the Volatility of the Economic Growth," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 2(1(2)_Fall).
    7. Natalia Zugravu-Soilita & Vincent Geronimi & Christine Le Gargasson & Jessy Tsang King Sang, 2017. "Towards a less vulnerable and more sustainable development: heritage tourism in island economies," Working Papers 2017.11, FAERE - French Association of Environmental and Resource Economists.
    8. Rochelle Belkar & Lynne Cockerell & Christopher Kent, 2008. "Current Account Deficits: Tha Australian Debate," Central Banking, Analysis, and Economic Policies Book Series,in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmidt- (ed.), Current Account and External Financing, edition 1, volume 12, chapter 13, pages 491-535 Central Bank of Chile.
    9. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.

    More about this item

    Keywords

    business cycles; volatility; panel regression; structural reform; monetary policy; OECD;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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