Is Volatility Good for Growth? Evidence from the G7

Elena Andreou, Alessandra Pelloni () and Marianne Sensier ()
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Elena Andreou: University of Cyprus
Marianne Sensier: University of Manchester

No 114, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We provide empirical support for a DSGE model with nominal wage stickiness where growth is driven by learning-by-doing and money shocks and their variance are allowed to impact on long-run output growth. In our theoretical model the variance of monetary shocks has a negative effect on growth, while output volatility is good for growth as a positive relationship exists. Utilising a bivariate GARCH-M model we test the empirical conditional mean and variance relationships of nominal money and production growth rates in the G7 countries. We corroborate the theoretical model predictions with evidence from Bonferroni multiple tests across the G7.

Keywords: growth uncertainty; learning-by-doing; monetary uncertainty; multivariate GARCH-in-mean; nominal rigidity. (search for similar items in EconPapers)
JEL-codes: C32 E32 O42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
Date: 2008-07-14, Revised 2008-07-14
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Working Paper: Is Volatility Good for Growth? Evidence from the G7 (2008)
Working Paper: Is volatility good for growth? Evidence from the G7 (2008)
Working Paper: Is Volatility Good for Growth? Evidence from the G7 (2008)
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