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What Drives Output Volatility? The Role of Demographics and Government Size Revisited

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  • Martin Iseringhausen
  • Hauke Vierke

Abstract

This paper studies the determinants of output volatility in a panel of 22 OECD countries. In contrast to the existing literature, we avoid ad hoc estimates of volatility based on rolling windows, and we account for possible non‐stationarity. Specifically, output volatility is modelled within an unobserved components model where the volatility series is the outcome of both macroeconomic determinants and a latent integrated process. A Bayesian model selection approach tests for the presence of the non‐stationary component. The results point to demographics and government size as important determinants of macroeconomic (in)stability. A larger share of prime‐age workers is associated with lower output volatility, while higher public expenditure increases volatility.

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  • Martin Iseringhausen & Hauke Vierke, 2019. "What Drives Output Volatility? The Role of Demographics and Government Size Revisited," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(4), pages 849-867, August.
    • Handle: RePEc:bla:obuest:v:81:y:2019:i:4:p:849-867
    DOI: 10.1111/obes.12286
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    2. Oscar Bajo-Rubio & Burcu Berke, 2023. "Revisiting the effects of government size and labour market institutions on macroeconomic volatility: the case of the eurozone," Economics and Business Letters, Oviedo University Press, vol. 12(1), pages 91-96.

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