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Accounting for variability in the growth rate of income

Author

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  • Lambert, Peter J.
  • Yitzhaki, Shlomo

Abstract

The average of periodic growth rates is a downwardly biased estimator of the rate of growth of a country. The higher the variance of the periodical growth rates, the higher the downward bias. The longer the business cycle, the higher the downward bias. In this short paper, we demonstrate these facts on a number of different levels, from intuitive to quite technical. We suggest that the variability of growth rates be taken into account whenever a long term forecast is prepared.

Suggested Citation

  • Lambert, Peter J. & Yitzhaki, Shlomo, 2015. "Accounting for variability in the growth rate of income," Economics Letters, Elsevier, vol. 129(C), pages 71-73.
    • Handle: RePEc:eee:ecolet:v:129:y:2015:i:c:p:71-73
    DOI: 10.1016/j.econlet.2015.02.005
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    References listed on IDEAS

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    1. Ravallion, Martin & Chen, Shaohua, 2003. "Measuring pro-poor growth," Economics Letters, Elsevier, vol. 78(1), pages 93-99, January.
    2. Shlomo Yitzhaki & Peter Lambert, 2014. "Is higher variance necessarily bad for investment?," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 855-860, November.
    3. Shlomo Yitzhaki, 1987. "The Relation between Return and Income," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 77-95.
    4. Lambert, Peter J, 1984. "Non-equiproportionate Income Growth, Inequality, and the Income Tax," Public Finance = Finances publiques, , vol. 39(1), pages 104-118.
    5. Siddiq Osmani, 2005. "Defining pro-poor growth," One Pager 9, International Policy Centre for Inclusive Growth.
    6. B. Essama‐Nssah & Peter J. Lambert, 2009. "Measuring Pro‐Poorness: A Unifying Approach With New Results," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 752-778, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Growth rate; Individual incomes; Gross national product;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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