The Determinants of Macroeconomic Volatility: A Bayesian Model Averaging Approach
University of New South Wales - Australian School of Business - School of Economics
November 18, 2010
Bayesian model averaging is applied to robustly ascertain the determinants of various output volatility measures, including the downside semi-deviation of growth rates. Financial sophistication variables are found to have qualitatively different effects on volatility. The ratio of government expenditure to GDP exhibited a significant positive relationship with volatility and the trade share of GDP was positively related for a balanced dataset of developed and developing countries between 1960-89, and negatively related for developing countries between 1974-89. Other significant determinants were the black market premium, civil liberties, political rights, rule of law, and ratios of short-term debt and taxation to GDP.
Number of Pages in PDF File: 33
Keywords: Macroeconomic volatility, Growth, Government policy, Bayesian model averaging, Model selection
JEL Classification: C11, C52, E32, E60, F00, O47working papers series
Date posted: November 20, 2010
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