Prague Economic Papers 2022, 31(6):509-537 | DOI: 10.18267/j.pep.812

Relationship Between Output Volatility and Output in OECD Countries Revisited

Aykut Ekinci ORCID...a
a Samsun University, Department of Economics and Finance, Samsun, Turkey

This study revisits the empirical relationship between output volatility and output for twelve OECD countries. An extended AR-EGARCH-M model was used to identify the structural break, asymmetric effect, jump effect and spillover effect. In addition to the classical logarithmic definition of growth, the study uses the Hodrick-Prescott filter to compute the deviations from the long-term trend as the output gap. The empirical results show that (i) the effect of output volatility on output differs across countries under the same model specifications; and (ii) while the in-mean effect and spillover effect are stronger for the output gap-based models, the jump effect has a major effect on output volatility under the classical logarithmic definition.

Keywords: Output gap, volatility, business cycle, EGARCH, wavelet, asymmetric effect
JEL classification: C22, E32, O40

Received: March 28, 2022; Revised: May 27, 2022; Accepted: July 19, 2022; Published: December 29, 2022  Show citation

ACS AIP APA ASA Harvard Chicago Chicago Notes IEEE ISO690 MLA NLM Turabian Vancouver
Ekinci, A. (2022). Relationship Between Output Volatility and Output in OECD Countries Revisited. Prague Economic Papers, 31(6), 509-537. doi: 10.18267/j.pep.812
Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Alberg, D., Shalit, H., Yosef, R. (2008). Estimating stock market volatility using asymmetric GARCH models. Applied Financial Economics, 18(15), 1201-1208, https://doi.org/10.1080/09603100701604225 Go to original source...
    2. Antonakakis, N., Badinger, H. (2016). Economic growth, volatility, and cross-country spillovers: New evidence for the G7 countries. Economic modelling, 52, 352-365, https://doi.org/10.1016/j.econmod.2015.08.035 Go to original source...
    3. Balke, N. S., Fomby, T. B. (1991). Shifting trends, segmented trends, and infrequent permanent shocks. Journal of Monetary Economics, 28(1), 61-85. Go to original source...
    4. Baxter, M., King, R. G. (1999). Measuring business cycles: approximate band-pass filters for economic time series. Review of Economics and Statistics, 81(4), 575-593, https://doi.org/10.3386/w5022 Go to original source...
    5. Beaumont, P. M., Norrbin, S. C., Yigit, F. P. (2008). Time series evidence on the linkage between the volatility and growth of output. Applied Economics Letters, 15, 45-48, https://doi.org/10.1080/13504850600607446 Go to original source...
    6. Bernanke, B. S. (1983). Irreversibility, uncertainty and cyclical investment. Quarterly Journal of Economics, 98, 85-106, https://doi.org/10.2307/1885568 Go to original source...
    7. Berument, M. H., Dincer, N. N., Mustafaoglu, Z. (2012). Effects of growth volatility on economic performance: empirical evidence from Turkey. European Journal of Operational Research, 217, 351-356, https://doi.org/10.1016/j.ejor.2011.09.026 Go to original source...
    8. Bhar, R., Mallik, G. (2013). Inflation uncertainty, growth uncertainty, oil prices, and output growth in the UK. Empirical Economics, 45, 1333-1350, https://doi.org/10.1007/s00181-012-0650-9 Go to original source...
    9. Bhowmik, R., Wang, S. (2020). Stock Market Volatility and Return Analysis: A Systematic Literature Review. Entropy, 22(5), 522, https://doi.org/10.3390/e22050522 Go to original source...
    10. Bilen, C., Huzurbazar, S. (2002). Wavelet-Based Detection of Outliers in Time Series. Journal of Computational and Graphical Statistics, 11(2), 311-327, https://doi.org/10.1198/106186002760180536 Go to original source...
    11. Black, F. (1987). Business cycles and equilibrium. New York: Basil Blackwell.
    12. Blackburn, K., Pelloni, A. (2004). On the relationship between growth and volatility. Economic Letters, 83(1), 123-127, https://doi.org/10.1016/j.econlet.2003.10.010 Go to original source...
    13. Blanchard, O., Simon, J. (2001). The long and large decline in US output volatility. Brookings papers on economic activity, 135-174, https://doi.org/10.2139/ssrn.277356 Go to original source...
    14. Burns, A. F., Mitchell, M. C. (1946). Measuring Business Cycles. Cambridge: NBER. ISBN 0-87014-085-X.
    15. Calmes, C., Théoret, R. (2014). Bank systemic risk and macroeconomic shocks: Canadian and US evidence. Journal of Banking & Finance, 40, 388-402, https://doi.org/10.1016/j.jbankfin.2013.11.039 Go to original source...
    16. Caporale, T., McKiernan, B. (1996). The relationship between output variability and growth: evidence from past war UK Data. Scottish Journal of Political Economy, 43, 229-236. Go to original source...
    17. Caporale, T., McKiernan, B. (1998). The Fischer black hypothesis: some time-series evidence. Southern Economic Journal, 64(3), 765-771, https://doi.org/10.2307/1060792 Go to original source...
    18. Charles, A., Darné, O. (2019). The accuracy of asymmetric GARCH model estimation. International Economics, 157, 179-202, https://doi.org/10.1016/j.inteco.2018.11.001 Go to original source...
    19. Charles, A., Darné, O. (2021). Econometric history of the growth-volatility relationship in the USA: 1919-2017. Cliometrica, 15(2), 419-442, https://doi.org/10.1007/s11698-020-00209-y Go to original source...
    20. Chatterjee, P., Shukayev, M. (2006). Are Average Growth Rate and Volatility Related? Bank of Canada Working Paper 2006-24. Go to original source...
    21. Darné, O. (2009). The uncertain unit root in real GNP: A re-examination. Journal of Macroeconomics, 31(1), 153-166, https://doi.org/10.1016/j.jmacro.2007.08.011 Go to original source...
    22. Darné, O., Diebolt, C. (2004). Unit roots and infrequent large shocks: New international evidence on output. Journal of Monetary Economics 51(7), 1449-1465, https://doi.org/10.1016/j.jmoneco.2003.12.007 Go to original source...
    23. Dejuan, J., Gurr, S. (2004). On the link between volatility and growth: evidence from Canadian provinces. Applied Economics Letters, 11(5), 279-282, https://doi.org/10.1080/1350485042000189569 Go to original source...
    24. Deniz, P., Stengos, T., Yazgan, M. E. (2021). Revisiting the link between output growth and volatility: panel GARCH analysis. Empirical Economics, 61(2), 743-771, https://doi.org/10.1007/s00181-020-01878-4 Go to original source...
    25. Diebold, F. X., Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. The Economic Journal 119, 158-171, https://doi.org/10.1111/j.1468-0297.2008.02208.x Go to original source...
    26. Döpke, J. (2004). How Robust is the Empirical Link between Business-Cycle Volatility and Long-Run Growth in OECD Countries? International Review of Applied Economics, 18(1), 103-121, https://doi.org/10.1080/0269217032000148672 Go to original source...
    27. Fallahi, F., Pourtaghi, H., Rodríguez, G. (2012). The unemployment rate, unemployment volatility, and crime. International Journal of Social Economics, 39(6), 440-448. Go to original source...
    28. Fountas, S., Karanasos, M., Mendoza, A. (2004). Output Variability and Economic Growth: the Japanese Case. Bulletin of Economic Research, 56(4), 353-363, https://doi.org/10.1111/j.1467-8586.2004.00209.x Go to original source...
    29. Friedman, M. (1968). The role of monetary policy. The American Economic Review, 58, 1-17.
    30. Greenblatt, S. A. (1996). Wavelets in Econometrics. In: Computational Economic Systems: Advances in Computational Economics, 5th edition. Dordrecht: Springer, 139-160, https://doi.org/10.1007/978-94-015-8743-3_7 Go to original source...
    31. Grier, K. B., Perry, M. J. (2000). The Effects of Real and Nominal Uncertainty on Inflation and Output Growth: Some Garch-M Evidence. Journal of Applied Econometrics, 15(1), 45-58, https://doi.org/10.1002/(SICI)1099-1255(200001/02)15:13.0.CO;2-K Go to original source...
    32. Hamilton, J. D. (1994). Time series analysis. Princeton: Princeton University Press. ISBN 0-691-04289-6. Go to original source...
    33. Henry, Ó. T., Olekalns, N. (2002). The effect of recessions on the relationship between output variability and growth. Southern Economic Journal, 68, 683-692, https://doi.org/10.2307/1061726 Go to original source...
    34. Ho, K. Y., Tsui, A. K. (2003). Asymmetric volatility of real GDP: Some evidence from Canada, Japan, the United Kingdom and the United States. Japan and the World Economy, 15(4), 437-445, https://doi.org/10.1016/S0922-1425(03)00026-4 Go to original source...
    35. Hodrick, R. J., Prescott, E. C. (1997). Postwar U.S. business cycles: an empirical investigation. Journal of Money, Credit, and Banking, 29(1), 1-16, https://doi.org/10.2307/2953682 Go to original source...
    36. Jansen, D. W., Cosimona, T. F. (1988). Estimates of the Variance of U.S. Inflation Based upon the ARCH Model: A Comment. Journal of Money Credit and Banking, 20(3), 409-421. Go to original source...
    37. Keynes, J. M. (1936). The general theory of employment, interest, and money. London: Macmillan.
    38. Kneller, R., Young, G. (2001). Business Cycle Volatility, Uncertainty and Long-run Growth. The Manchester School, 69(5), 534-552, https://doi.org/10.1111/1467-9957.00268 Go to original source...
    39. Kose, M. A., Otrok, C., Whiteman, C. H. (2008). Understanding the evolution of world business cycles. Journal of international Economics, 75(1), 110-130, https://doi.org/10.1016/j.jinteco.2007.10.002 Go to original source...
    40. Laurent, S., Lecourt, C., Palm, F. C. (2016). Testing for jumps in conditionally Gaussian ARMA-GARCH models, a robust approach. Computational Statistics & Data Analysis, 100, 383-400, https://doi.org/10.1016/j.csda.2014.05.015 Go to original source...
    41. Lee, J. (2010). The link between output growth and volatility: Evidence from a GARCH model with panel data. Economics Letters, 106(2), 143-145, https://doi.org/10.1016/j.econlet.2009.11.008 Go to original source...
    42. Martin, P., Rogers, C. A. (2000). Long-term growth and short-term economic instability. European Economic Review, 44, 359-381, https://doi.org/10.1016/S0014-2921(98)00073-7 Go to original source...
    43. Mills, T. C. (2000). Business Cycle Volatility and Economic Growth: A Reassessment. Journal of Post Keynesian Economics, 23(1), 107-116, https://doi.org/10.1080/01603477.2000.11490273 Go to original source...
    44. Mirman, L. J. (1971). Uncertainty and optimal consumption decisions. Econometrica, 39, 179-185. Go to original source...
    45. Neanidis, K. C., Savva, C. S. (2013). Macroeconomic uncertainty, inflation and growth: Regime-dependent effects in the G7. Journal of Macroeconomics, 35(3), 81-92, https://doi.org/10.1016/j.jmacro.2012.10.005 Go to original source...
    46. Nelson, D. (1991). Conditional Heteroskedasticity in Asset Returns: A New Approach. Econometrica, 59(2), 347-370, https://doi.org/10.2307/2938260 Go to original source...
    47. Norrbin, S. C., Yigit. F. P. (2005). The Robustness of the Link between Volatility and Growth of Output. Review of World Economics, 141, 343-356, https://doi.org/10.1007/s10290-005-0031-y Go to original source...
    48. Pindyck, R. (1991). Irreversibility, uncertainty and investment. Journal of Economic Literature, 29, 1110-1148. Go to original source...
    49. Ramey, G., Ramey, V. A. (1991). Technology commitment and the cost of economic fluctuations. NBER Working Paper No. 3755. Go to original source...
    50. Ramey, G., Ramey, V. A. (1995). Cross-Country Evidence on the Link Between Volatility and Growth. American Economic Review, 85(5), 1138-1151. Go to original source...
    51. Sandmo, A. (1970). The effect of uncertainty on saving. The Review of Economic Studies, 37(3), 353-360, https://doi.org/10.2307/2296725 Go to original source...
    52. Schumpeter, J. A. (1939). Business cycle: a theoretical, historical, and statistical analysis of the capitalist process. New York: McGraw-Hill.
    53. Siegler, M. V. (2005). International growth and volatility in historical perspective. Applied Economics Letters, 12(2), 67-71, https://doi.org/10.1080/1350485042000314361 Go to original source...
    54. Smiti, A. (2020). A critical overview of outlier detection methods. Computer Science Review, 38, 100306, https://doi.org/10.1016/j.cosrev.2020.100306 Go to original source...
    55. Solow, R. M. (1956). A contribution to the theory of economic growth. Quartely Journal of Economics, 70(1), 65-94, https://doi.org/10.2307/1884513 Go to original source...
    56. Speight, A. E. H. (1999). UK Output Variability and Growth: Some Further Evidence. Scottish Journal of Political Economy, 46, 175-184, https://doi.org/10.1111/1467-9485.00127 Go to original source...
    57. Taylor, J. B. (1999). Monetary policy rules. Chicago: University of Chicago Press. ISBN 0-226-79124-6. Go to original source...
    58. Trypsteen, S. (2017). The growth-volatility nexus: New evidence from an augmented GARCH-M model. Economic Modelling, 63(3), 15-25, https://doi.org/10.1016/j.econmod.2017.01.012 Go to original source...
    59. Woodford, M. (1990). Learning to Believe in Sunspots, Econometrica, 58(2), 277-307, https://doi.org/10.2307/2938205 Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return to the content