Is Volatility Good for Growth? Evidence from the G7
34 Pages Posted: 3 Apr 2008
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Is Volatility Good for Growth? Evidence from the G7
Is Volatility Good for Growth? Evidence from the G7
Date Written: February 1, 2008
Abstract
We provide empirical support for a DSGE model with nominal wage stickiness where growth is driven by learning-by-doing and money shocks and their variance are allowed to impact on long-run output growth. In our theoretical model the variance of monetary shocks has a negative effect on growth, while output volatility is good for growth as a positive relationship exists. Utilising a bivariate GARCH-M model we test the empirical conditional mean and variance relationships of nominal money and production growth rates in the G7 countries. We corroborate the theoretical model predictions with evidence from Bonferroni multiple tests across the G7
Keywords: growth uncertainty, learning-by-doing, monetary uncertainty, multivariate
JEL Classification: C32, E32, O42
Suggested Citation: Suggested Citation
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