MEASURING THE INTERNATIONAL DIMENSION OF OUTPUT VOLATILITY

Gerdie Everaert and Martin Iseringhausen

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: This paper studies output fluctuations in a panel of OECD economies with the aim to decompose the evolution in output volatility into domestic and international factors. To this end we use a factor-augmented dynamic panel model with both domestic and international shocks and spillovers between countries through trade linkages. Changes in the volatility of output growth can be due to a time-varying sensitivity to these shocks, changes in the propagation mechanism or shifts in the variances of shocks. We explicitly model cross-sectional dependence in the variance equation by specifying a common factor structure in the volatility of domestic shocks. The results show that while the size of international shocks and spillovers does not decrease in most countries, the volatilities of domestic shocks share a clear common decreasing trend. Hence, the `Great Moderation' appears to be mainly driven by a decline in the volatility of domestic shocks rather than smaller international shocks.

Keywords: Volatility; business cycle; Bayesian model selection (search for similar items in EconPapers)
JEL-codes: C32 E32 F44 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2017-01
New Economics Papers: this item is included in nep-mac
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Related works:
Journal Article: Measuring the international dimension of output volatility (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:17/928

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