On the non-causal link between volatility and growth

Olaf Posch and Klaus Wälde
Additional contact information
Olaf Posch: Aarhus University and CREATES, CESifo

No 2009025, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: A model highlighting the endogeneity of both volatility and growth is presented. Volatility and growth are therefore correlated but there is no causal link from volatility to growth. This joint endogeneity is illustrated by working out the effects through which economies with different tax levels differ both in their volatility and growth. Using a continuous-time DSGE model with plausible parametric restrictions, we obtain closedform measures of macro volatility based on cyclical components and output growth rates. Given our results, empirical volatility-growth analysis should include controls in the conditional variance equation. Otherwise an omitted variable bias is likely.

Keywords: Tax effects; Volatility measures; Poisson uncertainty; Endogenous cycles and growth; Continuous-time DSGE models (search for similar items in EconPapers)
JEL-codes: C65 E32 E62 H3 (search for similar items in EconPapers)
Pages: 28
Date: 2009-08-27
New Economics Papers: this item is included in nep-bec, nep-dge, nep-fdg and nep-mac
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: On the Non-Causal Link between Volatility and Growth (2010)
Working Paper: On the non-causal link between volatility and growth (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2009025

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