Econometric history of the growth–volatility relationship in the USA: 1919–2017

Amélie Charles and Olivier Darné
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Amélie Charles: Audencia Business School, 8 Route de la Jonelière, 44312, Nantes Cedex 3, France

Cliometrica, Journal of Historical Economics and Econometric History, 2021, vol. 15, issue 2, 419-442

Abstract: In this paper, we investigate the relationship between output volatility and growth using the standard GARCH-M framework and the US monthly industrial production index (IPI) for the period January 1919–December 2017, by taking into account the presence of shocks and variance changes. The results show that the IPI growth is strongly affected by large shocks which are associated with strikes in some industries, recessions, World War II and natural disasters. We also identify several subperiods with different level of volatility where the volatility declines along the subperiods, with the pre-WWII period (1919–1946) the highest volatile period and the aftermath period of the GFC (2010–2017) the lowest volatile period. We find no evidence of relationship between output volatility and its growth during the full sample 1919–2017 and also for all the subperiods. From a macroeconomic point of view, this implies that economic performances, as measured by IPI growth, do not depend on the uncertainty as measured by IPI volatility.

Keywords: Growth–volatility relationship; Breaks; Shock; GARCH-M model; Cliometrics (search for similar items in EconPapers)
JEL-codes: C22 E32 N12 O40 (search for similar items in EconPapers)
Date: 2021
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Journal Article: Econometric history of the growth–volatility relationship in the USA: 1919–2017 (2021)
Working Paper: Econometric history of the growth–volatility relationship in the USA: 1919–2017 (2021)
Journal Article: Econometric history of the growth–volatility relationship in the USA: 1919–2017
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Persistent link: https://EconPapers.repec.org/RePEc:afc:cliome:v:15:y:2021:i:2:p:419-442

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