The Deep Historical Roots of Macroeconomic Volatility
46 Pages Posted: 10 Apr 2016
Date Written: April 2016
We present cross-country evidence that a country’s macroeconomic volatility, measured either by the standard deviation of output growth or the occurrence of trend-growth breaks, is significantly affected by the country’s historical variables. In particular, countries with longer histories of state-level political institutions experience less macroeconomic volatility in post-war periods. Robustness checks reveal that the effect of this historical variable on volatility remains significant and substantial after controlling for a host of structural variables investigated in previous studies. We also find that the state history variable is more important in countries with a higher level of macroeconomic volatility.
Keywords: Macroeconomic volatility, history of State-level institution, History of agriculture, Technology adoption, Political stability
JEL Classification: O10, O33, O43
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