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The growth-volatility nexus: New evidence from an augmented GARCH-M model

Steven Trypsteen ()

Economic Modelling, 2017, vol. 63, issue C, 15-25

Abstract: The paper examines the growth-volatility nexus for 13 OECD countries using an augmented GARCH-M model. The model is able to simultaneously account for country interactions, structural breaks, heterogeneous effects, dynamics in the volatility effect and particular nonlinearities. To take country interactions into account, the model includes cross-country weighted averages of growth and volatility. This makes it possible to distinguish between domestic and external volatility. The paper shows that i) accounting for dynamics in the volatility effect, country interactions, structural breaks and heterogeneous effects is important and ii) domestic volatility is positively associated and external volatility is negatively associated with growth.

Keywords: GARCH-M; Global VAR; Structural breaks; Bounce back effect (search for similar items in EconPapers)
JEL-codes: C5 C32 E32 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ecmode:v:63:y:2017:i:c:p:15-25