The Growth-Volatility Relationship: New Evidence Based on Stochastic Volatility in Mean Models

Matthieu Lemoine and C. Mougin

Working papers from Banque de France

Abstract: This paper models the relationship between growth and volatility for G7 economies in the time period 1960-2009. It delivers for the first time estimates of this relationship based on a logarithm variant of stochastic volatility in mean (SV-M) models. The relationship appears significantly positive in Germany and Italy, but insignificant in other countries. We also show that output volatility has increased in all countries since the beginning of the financial crisis, which illustrates the end of the great moderation. For comparison, the paper also delivers estimates based on a logarithm variant of GARCH in mean (log-GARCH-M) models, the class of time series models previously used in the literature to estimate the growth-volatility relationship. We show that SV-M models deliver results preferable to those of log-GARCH-M models, despite the high computational cost of their estimation. SV-M models fit generally better data than log-GARCH-M ones. As their residuals do not violate distribution assumptions, they do not deliver dubious conclusions concerning the significance of the relationship, which is the case of the log-GARCH-model for France, the UK and the US. Finally, SV-M models suggest a positive impact of unexpected volatility on output growth, which is not taken into account by log-GARCH-M models.

Keywords: Growth; Volatility; Sequential Monte-Carlo Methods. (search for similar items in EconPapers)
JEL-codes: C15 E32 O40 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010
New Economics Papers: this item is included in nep-fdg and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... g-paper_285_2010.pdf (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:bfr:banfra:285

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().