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What determines macroeconomic volatility? A cross-section and panel data study

  • Leonidas Spiliopoulos

    (University of Sydney)

This paper examines the determinants of the volatility in growth rates, seeking to expand on a very limited literature which has focused almost exclusively on financial determinants of volatility. An analysis of 41 variables and their effects on growth volatility yields some surprising results: the relationship between financial sophistication and volatility is not clearly positive as expounded in many studies, the oft cited negative relationship between real GDP per capita and volatility turns out to be positive, and there is no important relationship between inflation and volatility. The main policy implication for authorities is that intervention in most cases, whether in the form of trade and currency controls, or high government consumption, tends to exacerbate volatility.

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Paper provided by EconWPA in its series Macroeconomics with number 0505026.

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Length: 39 pages
Date of creation: 30 May 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0505026
Note: Type of Document - pdf; pages: 39
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  1. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  2. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  3. Xavier X. Sala-i-Martin, 1997. "I Just Ran Four Million Regressions," NBER Working Papers 6252, National Bureau of Economic Research, Inc.
  4. Denizer, Cevdet & Iyigun, Murat F. & Owen, Ann L., 2000. "Finance and macroeconomic volatility," Policy Research Working Paper Series 2487, The World Bank.
  5. Joseph Macri & Dipendra Sinha, 2000. "Output variability and economic growth: The case of Australia," Journal of Economics and Finance, Springer, vol. 24(3), pages 275-282, September.
  6. Thanasis Stengos & Theofanis P. Mamuneas & Pantelis Kalaitzidakis, 2002. "Specification and sensitivity analysis of cross-country growth regressions," Empirical Economics, Springer, vol. 27(4), pages 645-656.
  7. Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
  8. Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Growth Volatility and Financial Liberalization," NBER Working Papers 10560, National Bureau of Economic Research, Inc.
  10. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  11. Imbs, Jean, 2002. "Why the Link Between Volatility and Growth is Both Positive and Negative," CEPR Discussion Papers 3561, C.E.P.R. Discussion Papers.
  12. Pantelis Kalaitzidakis & Theofanis P. Mamuneas & Thanasis Stengos, 2000. "A non-linear sensitivity analysis of cross-country growth regressions," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 604-617, August.
  13. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  14. Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1999. "Dualism and Macroeconomic Volatility," Scholarly Articles 4554124, Harvard University Department of Economics.
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