Declining Output Volatility: What Role for Structural Change?

Christopher Kent, Kylie Smith and James Holloway
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Christopher Kent: Reserve Bank of Australia
Kylie Smith: Reserve Bank of Australia
James Holloway: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: The decline in output volatility in a number of countries over the past few decades has been well-documented, though less agreement has been reached about the causes of this decline. In this paper, we use a panel of data from 20 OECD countries to see if there is a role for various indicators of structural reform in explaining the general decline in output volatility. We suggest that reforms in product and labour markets can reduce volatility of aggregate output by encouraging productive resources to shift more readily in response to differential shocks across firms and sectors. In contrast to other studies, we include direct measures of product market regulations and monetary policy regimes as indicators of structural reform. We find that less product market regulation and stricter monetary policy regimes have played a role in reducing output volatility. Our estimates are reasonably robust to a number of alternative specifications, including those that attempt to control for a possible trend in common (unexplained) innovations to output volatility such as a possible decline in the magnitude of global shocks.

Keywords: business cycles; volatility; panel regression; structural reform; monetary policy; OECD (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-bec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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