Modeling the Volatility of Real GDP Growth: The Case of Japan Revisited

WenShwo Fang and Stephen Miller

No 904, Working Papers from University of Nevada, Las Vegas , Department of Economics

Abstract: Previous studies (e.g., Hamori, 2000; Ho and Tsui, 2003; Fountas et al., 2004) find high volatility persistence of economic growth rates using generalized autoregressive conditional heteroskedasticity (GARCH) specifications. This paper reexamines the Japanese case, using the same approach and showing that this finding of high volatility persistence reflects the Great Moderation, which features a sharp decline in the variance as well as two falls in the mean of the growth rates identified by Bai and Perron’s (1998, 2003) multiple structural change test. Our empirical results provide new evidence. First, excess kurtosis drops substantially or disappears in the GARCH or exponential GARCH model that corrects for an additive outlier. Second, using the outlier-corrected data, the integrated GARCH effect or high volatility persistence remains in the specification once we introduce intercept-shift dummies into the mean equation. Third, the time-varying variance falls sharply, only when we incorporate the break in the variance equation. Fourth, the ARCH in mean model finds no effects of our more correct measure of output volatility on output growth or of output growth on its volatility.

Keywords: Japan; real GDP growth; the Great Moderation; outlier; structural changes; IGARCH effect (search for similar items in EconPapers)
JEL-codes: C32 E32 O40 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2009-01
New Economics Papers: this item is included in nep-bec, nep-fdg, nep-mac and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published in Japan and the World Economy, August 2009

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Related works:
Journal Article: Modeling the volatility of real GDP growth: The case of Japan revisited (2009)
Working Paper: Modeling the Volatility of Real GDP Growth: The Case of Japan Revisited (2008)
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