The Determinants of Macroeconomic Volatility: A Bayesian Model Averaging Approach

33 Pages Posted: 20 Nov 2010

See all articles by Leonidas Spiliopoulos

Leonidas Spiliopoulos

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Human Development

Date Written: November 18, 2010

Abstract

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.

Keywords: Macroeconomic volatility, Growth, Government policy, Bayesian model averaging, Model selection

JEL Classification: C11, C52, E32, E60, F00, O47

Suggested Citation

Spiliopoulos, Leonidas, The Determinants of Macroeconomic Volatility: A Bayesian Model Averaging Approach (November 18, 2010). Available at SSRN: https://ssrn.com/abstract=1711422 or http://dx.doi.org/10.2139/ssrn.1711422

Leonidas Spiliopoulos (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Human Development ( email )

Lentzeallee 94
D-14195 Berlin, 14195
Germany

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