The Growth-Volatility Relationship: What Does Volatility Decomposition Tell?
Debdulal Mallick ()
MPRA Paper from University Library of Munich, Germany
This paper revisits the empirical relationship between volatility and long-run growth, but the key contribution lies in decomposing growth volatility into its business-cycle and trend components. This volatility decomposition also accounts for enormous heterogeneity among countries in terms of their long-run growth trajectories. We identify a negative effect of trend volatility, which we refer to as long-run volatility, on growth, but no effect of business-cycle volatility. However, if long-run volatility is omitted, there would be a spurious (negative) effect of business-cycle volatility. Our results draw attention to a crucial question about different volatility measures and their implications in macroeconomic analyses.
Keywords: Growth; Business cycles; Volatility; Volatility persistence; Frequency (search for similar items in EconPapers)
JEL-codes: E32 F44 O11 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm, nep-gro and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:79397
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