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The Volatility of the Output Gap in the G7

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  • Barell, Ray
  • Gottschalk, Sylvia

Abstract

We investigate declining output volatility in the G7 since 1970 in a panel context, seeking to explain the causes of the decline. We show that there is a significant role for both net financial wealth and trade openness as well as inflation volatility, even though previous studies have ignored the fact that it may be endogenous and its role therefore spurious. However, its importance clearly varies over time and across countries, and it appears less important as an explanation of declining volatility in the US than it does in the UK. Changes in openness appear to be at least as important in explaining the decline in US output volatility.

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  • Barell, Ray & Gottschalk, Sylvia, 2004. "The Volatility of the Output Gap in the G7," National Institute Economic Review, National Institute of Economic and Social Research, vol. 188, pages 100-107, April.
    • Handle: RePEc:cup:nierev:v:188:y:2004:i::p:100-107_8
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    Cited by:

    1. Ulrich Fritsche & Vladimir Kuzin, 2005. "Declining output volatility in Germany: impulses, propagation, and the role of monetary policy," Applied Economics, Taylor & Francis Journals, vol. 37(21), pages 2445-2457.
    2. Douglas Sutherland & Peter Hoeller & Balázs Égert & Oliver Röhn, 2010. "Counter-cyclical Economic Policy," OECD Economics Department Working Papers 760, OECD Publishing.
    3. Christopher Kent & Kylie Smith & James Holloway, 2005. "Declining Output Volatility: What Role for Structural Change?," RBA Research Discussion Papers rdp2005-08, Reserve Bank of Australia.
    4. Balázs Égert & Douglas Sutherland, 2014. "The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(1), pages 98-117, February.
    5. Christina V. Atanasova & Jianhua Gang, 2008. "The Decline In The Volatility Of The Business Cycles In The Uk," Manchester School, University of Manchester, vol. 76(s1), pages 14-36, September.
    6. Sandra Bilek-Steindl, 2012. "On the Change in the Austrian Business Cycle," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2012(1), pages 1-18.
    7. Venil Ramiah, 2010. "European Views on Asia and Europe-Asian Relations," Working Papers id:2715, eSocialSciences.
    8. Anna Batyra, 2007. "Are turbulences of Sargent and Ljungqvist consistent with lower aggregate volatility?," 2007 Meeting Papers 413, Society for Economic Dynamics.
    9. Stephen G Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2005. "Assessing the Sources of Changes in the Volatility of Real Growth," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & David Norman (ed.),The Changing Nature of the Business Cycle, Reserve Bank of Australia.
    10. Ray Barrell & Dawn Holland & Iana Liadze & Olga Pomerantz, 2009. "Volatility, growth and cycles," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(2), pages 177-192, May.
    11. Martínez-García Enrique, 2018. "Modeling time-variation over the business cycle (1960–2017): an international perspective," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(5), pages 1-25, December.
    12. Christopher Kent & Kylie Smith & James Holloway, 2005. "Declining Output Volatility: What Role for Structural Change?," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & David Norman (ed.),The Changing Nature of the Business Cycle, Reserve Bank of Australia.
    13. Dan Andrews & Marion Kohler, 2005. "International Business Cycle Co-movements through Time," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & David Norman (ed.),The Changing Nature of the Business Cycle, Reserve Bank of Australia.
    14. Angelos Kanas & Christos Ioannidis, 2010. "Causality from real stock returns to real activity: evidence of regime-dependence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(2), pages 180-197.
    15. Karunanayake, Indika & Valadkhani, Abbas & O’Brien, Martin, 2012. "GDP Growth and the Interdependency of Volatility Spillovers," MPRA Paper 50398, University Library of Munich, Germany.
    16. Kwang-Myoung Hwang & Donghyun Park & Kwanho Shin, 2013. "Capital Market Openness and Output Volatility," Pacific Economic Review, Wiley Blackwell, vol. 18(3), pages 403-430, August.
    17. Philippe Burger, 2008. "The Changing Volatility Of The South African Economy," South African Journal of Economics, Economic Society of South Africa, vol. 76(3), pages 335-355, September.
    18. Konstantin A. Kholodilin & Erik Klär, 2007. "Dem Konjunkturzyklus auf der Spur: zur Prognose konjunktureller Wendepunkte in Deutschland," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 76(4), pages 8-20.
    19. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.
    20. William Martin & Robert Rowthorn, 2004. "Will Stability Last?," CESifo Working Paper Series 1324, CESifo.
    21. Thomas Beissinger, 2006. "Neue Anforderungen an eine gesamtwirtschaftliche Stabilisierung," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 277/2006, Department of Economics, University of Hohenheim, Germany.
    22. Brito, João Antonio, 2015. "Social Cohesion and Economic Growth: Small States vs Large States," MPRA Paper 66118, University Library of Munich, Germany.
    23. Barrett, Alan & Bergin, Adele & FitzGerald, John & Traistaru-Siedschlag, Iulia, 2006. "Economic Assessment of the Euro Area: Forecasts and Policy Analysis, Autumn Report 2006," Research Series, Economic and Social Research Institute (ESRI), number sustat22.

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