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The B.E. Journal of Macroeconomics

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The growth-volatility relationship redux: what does volatility decomposition tell?

Debdulal Mallick
Published Online: 2018-05-31 | DOI: https://doi.org/10.1515/bejm-2018-0076

Abstract

This paper revisits the empirical relationship between volatility and long-run growth, but the key contribution lies in decomposing growth volatility into its business-cycle and trend components. This volatility decomposition also accounts for enormous heterogeneity among countries in terms of their long-run growth trajectories. We identify a negative effect of trend volatility, which we refer to as long-run volatility, on growth, but no effect of business-cycle volatility. However, if long-run volatility is omitted, there would be a spurious (negative) effect of business-cycle volatility. Our results draw attention to a crucial question about different volatility measures and their implications in macroeconomic analyses.

Keywords: business cycles; frequency; growth; volatility persistence; volatility

JEL Classification: E32; F44; O11; O40

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About the article

Published Online: 2018-05-31


Citation Information: The B.E. Journal of Macroeconomics, 20180076, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2018-0076.

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