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The growth-volatility relationship redux: what does volatility decomposition tell?
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.
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B.E. journal of macroeconomicsVolume
19Issue
2Publisher
De GruyterLocation
Berlin, GermanyPublisher DOI
eISSN
1935-1690Language
engPublication classification
C1 Refereed article in a scholarly journal; C Journal articleCopyright notice
2018, Walter de Gruyter GmbH, Berlin/Boston.Usage metrics
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