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

WenShwo Fang () and Stephen M. Miller ()

No 2008-47, Working papers from University of Connecticut, 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)
New Economics Papers: this item is included in nep-bec and nep-mac
Date: 2008-12
View list of references

Forthcoming in Japan and the World Economy

Downloads: (external link)
http://www.econ.uconn.edu/working/2008-47.pdf Full text (application/pdf)

Related works:
Working Paper: Modeling the Volatility of Real GDP Growth: The Case of Japan Revisited (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:uct:uconnp:2008-47

Access Statistics for this paper

More papers in Working papers from University of Connecticut, Department of Economics
Address: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063
Contact information at EDIRC.
Series data maintained by Christian Zimmermann ().