What Explains Output Volatility? Evidence from the G3

Maria Grydaki () and Stilianos Fountas

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: This paper investigates the short-run and long-run impact of the determinants of output volatility for the G3 during the period 1974-2009. We estimate a multivariate GARCH model and include the covariances of those determinants, which have been ignored in the prior relevant literature. Our findings indicate that nominal variability, namely variability in the interest rate and inflation, explains output volatility. Fiscal policy variations, captured by the volatility of government spending, are found to be important as well. Fluctuations in the international markets seem to affect significantly the volatility of output in almost all countries under examination. Finally, any real shock originated from the world’s most advanced country, the U.S., transcends to the other two with high significance.

Keywords: output volatility; multivariate GARCH; BEKK (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 E0 (search for similar items in EconPapers)
Date: 2010-07, Revised 2010-07
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