Accounting for output fluctuations in manufacturing

There is a substantial body of evidence to the effect that output is more volatile than sales among manufacturing industries. Numerous explanations have been advanced to account for this excess output volatility. Some examples are pro-cyclical inventory movements induced by a stockout-avoidance motive, cost and technology shocks and decreasing marginal costs. This article assesses the contribution of these different motives to output volatility for six different manufacturing industries. Linear–quadratic models are estimated for each of the industries and then dynamic simulations are employed to determine the volatility of output when one or more of the factors are removed from the model. Technology shocks provide the most significant contribution to output volatility. The stockout-avoidance motive is also important. Cost shocks provide a very small contribution and marginal production costs are increasing at the margin and thus stabilize output. It is also shown that output volatility declines when current values of sales and material costs are assumed known rather than forecasted from prior periods’ values.     

On the relative importance of demand and supply shocks: a panel VAR study for US states

This article is a panel VAR study of demand and supply shocks in the USA using state-level data where structural shocks are decomposed into state idiosyncratic and common components. Decomposition suggests that in all instances, idiosyncratic state shocks rather than common shocks have larger impact and explain most variation in both the state-level unemployment rate and real gross state product. Further, demand shocks are the primary driving force in unemployment rate fluctuations, while both demand and supply are important in output movements to varying degree of impact and importance depending on the use of quarterly or annual data.     

The impact of output and exchange rate volatility on fixed private investment: evidence from selected G7 countries

This study examines the impact of shocks to exchange rate and output uncertainty (volatility) on real private fixed investment (FI) in Canada, Germany, the United Kingdom and the United States. The analysis is conducted using vector autoregressive models that contain the price level, real output, the volatility of real output, the real exchange rate, the volatility of the real exchange rate, an interest rate and FI. The results yield important public policy implications with regard to the impact of output volatility of FI. Our analysis indicates that volatility shocks, measured as output volatility or exchange rate volatility, do not have a significant impact on FI for any country in our study.     

The effect of growth volatility on income inequality

This paper assesses the long-run effect of growth volatility on income inequality using a comprehensive panel of annual U.S. state-level data during the 1945 to 2004 period. Using the pooled mean group (PMG) estimator, we find evidence supporting the hypothesis that larger growth volatility positively and significantly associates with higher income inequality. Our key finding is robust to alternative lag structures, conditioning variables, inequality measures, volatility indicators, time periods, and panel estimators. Our key finding does change for asymmetric effects, where larger growth volatility positively and significantly associates with higher income inequality only for positive economic growth. The volatility effect proves positive, but insignificant, for negative economic growth.     

INPUT AND OUTPUT INVENTORIES IN GENERAL EQUILIBRIUM*

We build and estimate a two‐sector dynamic stochastic general equilibrium model with two types of inventories: Input inventories facilitate the production of finished goods, output inventories yield utility services. The estimated model replicates the volatility and cyclicality of inventory investment and inventory‐to‐target ratios. Although inventories are an important element of the model’s propagation mechanism, shocks to inventory efficiency are not an important source of business cycles. When the model is estimated over two subperiods (pre‐ and post‐1984), changes in the volatility of inventory shocks or in structural parameters associated with inventories play a small role in reducing the volatility of output.     

Personal income tax progressivity and output volatility: Evidence from OECD countries

This paper investigates empirically the effect of personal income tax progressivity on output volatility using macro data from a sample of OECD countries over the period 1982–2009. Our measure of progressivity is based on the difference between the marginal and the average personal income tax rate for the average production worker. We find supportive empirical evidence for the hypothesis that higher personal income tax progressivity leads to lower output volatility. This effect comes in addition to the stabilizing impact of government size and it is equally important in economic terms. All other factors constant, countries with more progressive personal income tax systems seem to benefit from stronger automatic stabilizers.     

The geography of output volatility

This paper examines the structural determinants of output volatility in developing countries, and especially the roles of geography and institutions. We investigate the volatility effects of market access, climate variability, the geographic predisposition to trade, and various measures of institutional quality. We find an especially important role for market access: remote countries are more likely to have undiversified exports and to experience greater volatility in output growth. Our results are based on Bayesian methods that allow us to address formally the problem of model uncertainty and to examine robustness across a wide range of specifications.     

The geography of output volatility

This paper examines the structural determinants of output volatility in developing countries, and especially the roles of geography and institutions. We investigate the volatility effects of market access, climate variability, the geographic predisposition to trade, and various measures of institutional quality. We find an especially important role for market access: remote countries are more likely to have undiversified exports and to experience greater volatility in output growth. Our results are based on Bayesian methods that allow us to address formally the problem of model uncertainty and to examine robustness across a wide range of specifications.     

Financial market participation and the developing country business cycle

I explore the implications of limited participation in financial markets on a standard small open economy business cycle model. Despite its parsimony, the limited participation model developed in this paper improves over the standard model in terms of explaining two important features of business cycle facts of developing countries: high volatility of consumption, and high negative correlation between the trade balance and output. Limited participation model is then used to inspect the effects of financial development and integration on macroeconomic volatility. Under a standard calibration, limited participation model leads to the conclusion that financial development and integration are associated with higher investment and output volatility. Effect of more participation on consumption volatility is dependent on the specification of the risk premium function.     

Macroeconomic Volatility and the Current Account: Evidence from a Panel of OECD Countries

ABSTRACT

This paper investigates the relationship between macroeconomic volatility and the current account. Using quarterly data for a panel of OECD economies, time-varying relative volatility measures are constructed for GDP, net output, and government consumption. The empirical evidence suggests that current account balances are positively affected by all three volatility measures. Moreover, the current account balance is found to be related positively to output growth and negatively to the growth of government consumption. Evidence from saving and investment rates also suggests that the precautionary saving motive is part of (though perhaps not the entire) mechanism that relates output volatility and the current account. Broadly consistent with the predictions of the standard theoretical model, these estimates are sizable, statistically significant, and robust.     

EXAMINING THE STABILITY OF OKUN'S COEFFICIENT

The stability of Okun's law coefficient in the United States from 1949 to 2015 is examined using a regression with GARCH errors in order to capture the volatility of the series. Rolling estimations suggest that taking the volatility of the series into account yields more stable results compared to the simple OLS estimation, irrespective of the specification (gap or growth model), the data frequency (monthly or quarterly), or the length of the rolling window. The results also suggest that the persistence of shocks became much more important in explaining contemporaneous volatility when data from the recent global financial crisis were incorporated. In contrast, the feedthrough of output shocks in next period's output volatility was more important in the past, and especially during the 1970s stagflation period, but has been declining since.     

International Spillovers of Output Growth and Output Growth Volatility: Evidence from the G7

This paper examines the transmission of GDP growth and GDP growth volatility among the G7 countries over the period 1960Q1 – 2010Q4, using a multivariate GARCH model and volatility impulse response functions (VIRFs) to identify the source, magnitude and the duration of volatility spillovers. Results indicate the presence of positive own-country GDP growth spillovers in each country and cross-country GDP growth spillovers among most of the G7 countries. In addition, the large number of significant own-country output growth volatility spillovers and cross-country output growth volatility spillovers indicates that output growth shocks in most of the G7 countries affect output growth volatility in the other remaining countries. An additional finding is that the duration of output growth volatility spillovers has increased over time from some seven quarters in the 1970s to some ten quarters during the recent crisis, which is likely to be due to the increased integration of goods and financial markets.     

Monetary policy, oil shocks, and TFP: Accounting for the decline in US volatility

An equilibrium model is used to assess the quantitative importance of monetary policy for the post-1984 decline in US inflation and output volatility. The principal finding is that monetary policy played a substantial role in reducing inflation volatility, but a small role in reducing real output volatility. The model attributes much of the decline in real output volatility to smaller TFP shocks. We also investigate the pattern of output and inflation volatility under an optimal monetary policy counterfactual. We find that real output volatility would have been somewhat lower, and inflation volatility substantially lower, had monetary policy been set optimally.     

Business Cycle Volatility in Germany

Abstract. Stylized facts suggest that output volatility in OECD countries has declined in recent years. The causes and the nature of this decline have so far been analyzed mainly for the United States. In this paper, we analyze whether structural changes in output volatility in Germany can be detected. We report evidence that output volatility has declined in Germany. It is difficult to answer the question whether this decline in output volatility reflects good economic and monetary policy or merely ‘good luck’.     

Economic growth,volatility, and cross-country spillovers: New evidence for the G7 countries

This study examines the linkages between output growth and output volatility in the G7 countries over the period 1958M2–2013M8. Using the VAR-based spillover index approach by Diebold and Yilmaz (2012) we find that: i) output growth and volatility are highly intertwined; ii) spillovers have reached unprecedented levels during the global financial crisis; and iii) the US has been the largest transmitter of growth and volatility shocks. Generalized impulse response analyses suggest moderate growth spillovers and sizable volatility spillovers across countries. Cross-variable effects indicate that volatility shocks lead to lower growth, while growth shocks reduce output volatility.     

Exchange Rate Volatility and Output Volatility: A Theoretical Approach*

This paper makes an attempt to determine the factors influencing exchange rate and exchange rate uncertainty, as well as output and output variability. In the context of a small open economy under flexible exchange rates regime it is found that the level both of exchange rate and output is affected by monetary and inflationary shocks, as well as shocks in government spending, output, and trade balance. Further, the uncertainty of exchange rate and output is associated positively with the uncertainty of all shocks while the contemporaneous occurrence of selected shocks imposes either a positive or negative impact on exchange rate and output volatility. Finally, it is shown that the effect of the determinants either of exchange rate volatility or output volatility is very sensitive to the parameter values.     

Output volatility in Australia

A number of papers have documented a significant decline in real GDP volatility in several major OECD economies. Some authors have presented evidence to suggest that this is the outcome of a one-off structural break from a high to low volatility state whilst others have estimated regime switching models that indicate low volatility regime states have dominated in recent years. This article provides further evidence on the general properties of output volatility for Australia, including evidence of a significant moderation in output volatility for the country that occurred in the early 1980s. Estimates of various GARCH models of real GDP growth are also provided to further examine shorter term volatility features of the Australian economy that are associated with its business-cycle. A regime shift dummy is maintained in all models of the conditional variance in order to account for the regime shift in volatility and evidence is found of significant business-cycle effects, including leverage effects and asymmetries that suggest recessions are times of higher output volatility than economic expansions. Overall, it is concluded that the so-called ‘Great Moderation’ in macroeconomic instability, as documented here for Australia, is a result of a myriad of economic, institutional and policymaking changes.     

Volatility,growth and cycles

The paper investigates the factors affecting the equilibrium level of output in a panel of European countries. Output depends on factor inputs and on the technology and the efficiency with which those factors are used. Efficiency may be driven by international conditions and institutional changes such as the Single Market Programme in Europe. The technology indicators used in this study depend upon research and development and also include the level of labour efficiency which is indexed on skills data. The level of the capital stock depends upon the user cost of capital, which may depend upon risk and hence on the volatility of the economy. Recent literature suggests that real exchange rate volatility is important in determining investment and therefore has an impact on equilibrium output. A link of this form is uncovered for the European economies. If policy can reduce these volatilities then it can also raise equilibrium output.

中国的“三元悖论”政策目标组合选择及其影响

本文构建了"三元悖论"政策目标指数,并探讨了中国的宏观经济管理策略对经济稳定性的影响。研究发现,中国以汇率高度稳定作为首要目标,并追求适度的货币政策独立性,而谨慎追求金融开放,并积累了巨额外汇储备。这种策略的影响包括:(1)较高的货币政策独立性对降低产出波动率有积极作用,因持有外汇储备的间接影响使得汇率高度稳定政策也显著降低了产出波动率,金融开放同样也起到了降低产出波动率的作用;(2)积累巨额外汇储备与追求汇率高度稳定政策间的交互影响使得汇率稳定成为维持物价稳定的消极因素,货币政策独立性将降低国内通货膨胀波动率而积累过多的外汇储备却恶化这种影响,金融开放将增加物价波动性。文章凸显出过度追求人民币名义汇率稳定的弊端。     

DOES SCIENTIFIC AND TECHNICAL RESEARCH REDUCE MACROECONOMIC VOLATILITY?

This paper explores whether conducting scientific and technical (S&T) research reduces the volatility of output growth. The paper finds robust evidence that output volatility is significantly lowered by a country's production of S&T publications. The results show that the effect of S&T publications on output volatility is particularly strong in middle‐income, OECD and other high‐income countries. However, for East‐Asian, low‐income and sub‐Saharan African countries the effect is either weak or absent. These results provide strong evidence that not only OECD and other high‐income countries are actively engaged in S&T research, emerging developing countries are also conducting S&T research, which is effective in reducing output volatility. The results are robust to adding a host of control variables, various subsamples and different estimation techniques.