Volatility and Growth: An Alternative Interpretation
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Prior research on the relationship between output volatility and growth has produced mixed results. This paper investigates the volatility-growth relationship from a different empirical angle, focusing on the signs of the volatility-growth relation across business cycle phases. We fit two strands of models (i.e., the ARCH-type model and Markov-Switching model) to the U.S. real GDP data,and find results supporting that the volatility-growth relation is positive when the economy is in the expansion phase, while higher volatility lowers growth rate in the contraction phase. Therefore,empirical investigations of data without taking this feature into account will fail to recover non-trivial relation between volatility and growth.
Abstract
Prior research on the relationship between output volatility and growth has produced mixed results. This paper investigates the volatility-growth relationship from a different empirical angle, focusing on the signs of the volatility-growth relation across business cycle phases. We fit two strands of models (i.e., the ARCH-type model and Markov-Switching model) to the U.S. real GDP data,and find results supporting that the volatility-growth relation is positive when the economy is in the expansion phase, while higher volatility lowers growth rate in the contraction phase. Therefore,empirical investigations of data without taking this feature into account will fail to recover non-trivial relation between volatility and growth.
참고문헌 (20)
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