Sources of Volatility in Small Economies
Do sources of volatility differ by country characteristics such as the level of development, country size, quality of institutions, and presence of restrictions on fiscal policy? This paper sets out to answer this question in a quarterly panel of 4...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/412821531405512576/Sources-of-volatility-in-small-economies http://hdl.handle.net/10986/29999 |
| Summary: | Do sources of volatility differ by
country characteristics such as the level of development,
country size, quality of institutions, and presence of
restrictions on fiscal policy? This paper sets out to answer
this question in a quarterly panel of 48 developed and
developing countries for 1960-2015. Using individual country
and panel vector autoregressions, the paper shows that
factors affecting gross domestic product volatility differ
systematically by country size, development level, and
whether a country has adopted fiscal rule(s). The role of
country size is particularly pronounced in developing
countries. The paper shows that small developing countries
are more prone to domestic output shocks, while shocks to
the world interest rate and real exchange rate are more
important in large developing countries. Small countries are
also more susceptible to terms of trade shocks. These
results suggest that stabilization policies must be designed
with these country characteristics in mind. |
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