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Empirical Evidence on Growth and Volatility

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  • Michael Stastny
  • Martin Zagler

Abstract

This paper empirically investigates the relationship between long-run economic growth and output volatility. There is an emerging theoretical literature on the topic which is inconclusive on the size and direction of the relationship. We analyze this relationship empirically for the time series experience of 21 OECD countries between the years 1961 and 2005. After applying a pooled OLS estimator and a series of robustness checks we conclude that there is strong empirical evidence for a positive relationship between output variability and economic growth.

Suggested Citation

  • Michael Stastny & Martin Zagler, 2007. "Empirical Evidence on Growth and Volatility," RSCAS Working Papers 2007/22, European University Institute.
  • Handle: RePEc:rsc:rsceui:2007/22
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    References listed on IDEAS

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    1. Persson, Torsten & Tabellini, Guido, 2002. "Political economics and public finance," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 24, pages 1549-1659 Elsevier.
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    4. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    5. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, pages 833-850.
    6. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, January.
    7. McCallum, Bennett T, 1995. "Two Fallacies Concerning Central-Bank Independence," American Economic Review, American Economic Association, vol. 85(2), pages 207-211, May.
    8. Avinash Dixit & Henrik Jensen, 2003. "Common Agency with Rational Expectations: Theory and Application to a Monetary Union," Economic Journal, Royal Economic Society, vol. 113(489), pages 539-549, July.
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    Citations

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    Cited by:

    1. Christoph Priesmeier & Nikolai Stähler, 2011. "Long Dark Shadows Or Innovative Spirits? The Effects Of (Smoothing) Business Cycles On Economic Growth: A Survey Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 898-912, December.
    2. John W. Dawson, 2015. "The Empirical Volatility-Growth Relationship: Is Economic Freedom the Missing Link?," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 30(Summer 20), pages 61-82.
    3. Mallick, Debdulal, 2015. "Elusive Relationship between Business-cycle Volatility and Long-run Growth," MPRA Paper 64502, University Library of Munich, Germany.
    4. Syed Jawaid & Abdul Waheed, 2011. "Effects of Terms of Trade and its Volatility on Economic Growth: A Cross Country Empirical Investigation," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), pages 217-229.
    5. Sandra Steindl, 2007. ""The Interrelation of Cycles and Growth". Results of an International Conference," WIFO Monatsberichte (monthly reports), WIFO, vol. 80(10), pages 795-802, October.
    6. Martin Falk & Franz Sinabell, 2009. "A spatial econometric analysis of the regional growth and volatility in Europe," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(2), pages 193-207, May.
    7. Mallick, Debdulal, 2017. "The Growth-Volatility Relationship: What Does Volatility Decomposition Tell?," MPRA Paper 79397, University Library of Munich, Germany.

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    Keywords

    Growth; Volatility; Cycles; Innovation;

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