The Decline in German Output Volatility: A Bayesian Analysis

32 Pages Posted: 28 Feb 2006

See all articles by Christian Aßmann

Christian Aßmann

University of Bamberg - Department of Economics

Roman Liesenfeld

University of Cologne, Department of Economics

Jens Hogrefe

University of Kiel - Faculty of Economics and Social Sciences

Date Written: February 23, 2006

Abstract

Empirical evidence suggests a sharp volatility decline of the growth in U.S. gross domestic product (GDP) in the mid-1980s. Using Bayesian methods, we analyze whether a volatility reduction can also be detected for the German GDP. Since statistical inference for volatility processes critically depends on the specification of the conditional mean we assume for our volatility analysis different time series models for GDP growth. We find across all specifications evidence for an output stabilization around 1993, after the downturn following the boom associated with the German reunification. However, the different GDP models lead to alternative characterizations of this stabilization: In a linear AR model it shows up as smaller shocks hitting the economy, while regime switching models reveal as further sources for a stabilization, a narrowing gap between growth rates during booms and recessions or flatter trajectories characterizing the GDP growth rates. Furthermore, it appears that the reunification interrupted an output stabilization emerging already around 1987.

Keywords: business cycle models, Gibbs sampling, Markov Chain Monte Carlo, regime switching models, structural breaks

JEL Classification: C11, C15, C32, E32

Suggested Citation

Aßmann, Christian and Liesenfeld, Roman and Hogrefe, Jens, The Decline in German Output Volatility: A Bayesian Analysis (February 23, 2006). Available at SSRN: https://ssrn.com/abstract=886525 or http://dx.doi.org/10.2139/ssrn.886525

Christian Aßmann (Contact Author)

University of Bamberg - Department of Economics ( email )

Bamberg 96045
Germany

Roman Liesenfeld

University of Cologne, Department of Economics ( email )

Albertus-Magnus-Platz
D-50931 Köln
Germany

Jens Hogrefe

University of Kiel - Faculty of Economics and Social Sciences ( email )

Westring 425
D-24118 Kiel, 24161
Germany

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