Volatility and Growth
The authors study the empirical, cross-country relationship between macroeconomic volatility and long-run economic growth. They address four central questions: 1) Does the volatility-growth link depend on country and policy characteristics, such as...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/01/2877484/volatility-growth http://hdl.handle.net/10986/13853 |
| Summary: | The authors study the empirical,
cross-country relationship between macroeconomic volatility
and long-run economic growth. They address four central
questions: 1) Does the volatility-growth link depend on
country and policy characteristics, such as the level of
development or trade openness? 2) Does this link reflect a
statistically and economically significant causal effect
from volatility to growth? 3) Has this relationship been
stable over time and has it become stronger in recent
decades? 4) Does the volatility-growth connection actually
reveal the impact of crises rather than the overall effect
of cyclical fluctuations? The authors find that
macroeconomic volatility, and long-run economic growth are
indeed negatively related. This negative link is exacerbated
in countries that are poor, institutionally underdeveloped,
undergoing intermediate stages of financial development, or
unable to conduct counter-cyclical fiscal policies. They
find evidence that this negative relationship actually
reflects the harmful effect from volatility to growth.
Furthermore, the authors find that the negative effect of
volatility on growth has become considerably larger in the
past two decades, and that it is mostly due to large
recessions rather than normal cyclical fluctuations. |
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