IDEAS home Printed from https://ideas.repec.org/p/ice/wpaper/wp83.html
   My bibliography  Save this paper

Volatility of national account data for Iceland and other OECD countries

Author

Listed:
  • Á sgeir Daníelsson

Abstract

In this paper we study volatility of national accounting aggregates for Iceland and compare it to volatility of these aggregates for other OECD countries. The paper uses three different methods to measure volatility: 1) log deviations from trend obtained using HP filter; 2) log deviations from trend obtained using the filter suggested by J.D. Hamilton; 3) log changes in the series. The paper studies effects of filters like seasonal adjustments on measured volatility. In most cases seasonal factors account for much of the variance in the unadjusted time series. Iceland and Ireland are outliers in this respect asseasonal variations explain relatively small part of the variance in the unadjusted series. We compare volatility of quarterly data to volatility of annual data and derive approximate formulas for the measures of volatility in annual data in terms of voltility and autocorrelations of the quarterly series. In most cases measured volatility in quarterly and annual data give similar pictures of the volatility of national accounting aggregates in a given country, but there are exceptions. Iceland is an outlier in this respect as the increase in the volatility of annual data for consumption is very large compared to volatility of seasonally adjusted data when log changes in the series are used to measure volatility. Much higher autocorrelations in the data forseasonally adjusted consumption compared to GDP explain why consumption can be less volatile than GDP in terms of seasonally adjusted quarterly data, but much more volatile in terms of annual data. We also study the relationship between the volatility of consumption and volatility of GDP. In almost half of the countries in our data set of 34 OECD countries consumption is more volatile than income measured by GDP. Finally, this paper studies the relationship between the size of an economy and its volatility and use it to assess if the Icelandic economy is more volatile than is to be expected when its size is taken into account.

Suggested Citation

  • Á sgeir Daníelsson, 2020. "Volatility of national account data for Iceland and other OECD countries," Economics wp83, Department of Economics, Central bank of Iceland.
    • Handle: RePEc:ice:wpaper:wp83
    as

    Download full text from publisher

    File URL: https://www.cb.is/library/Skraarsafn---EN/Working-Papers/WP_83_net_utgafa_Ill.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    2. John Campbell & Angus Deaton, 1989. "Why is Consumption So Smooth?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 357-373.
    3. Olfa Alouini & Paul Hubert, 2010. "Country size, Growth and Volatility," Documents de Travail de l'OFCE 2010-18, Observatoire Francais des Conjonctures Economiques (OFCE).
    4. Furceri, Davide & Karras, Georgios, 2007. "Country size and business cycle volatility: Scale really matters," Journal of the Japanese and International Economies, Elsevier, vol. 21(4), pages 424-434, December.
    5. Bjarni G. Einarsson & Gudjón Emilsson & Svava J. Haraldsdóttir & Thórarinn G. Pétursson & Rósa B. Sveinsdóttir, 2013. "On our own? The Icelandic business cycle in an international context," Economics wp63, Department of Economics, Central bank of Iceland.
    6. James D. Hamilton, 2017. "Why You Should Never Use the Hodrick-Prescott Filter," NBER Working Papers 23429, National Bureau of Economic Research, Inc.
    7. Quah, Danny, 1990. "Permanent and Transitory Movements in Labor Income: An Explanation for "Excess Smoothness" in Consumption," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 449-475, June.
    8. Angus Deaton, 1986. "Life-Cycle Models of Consumption: Is the Evidence Consistent with the Theory?," NBER Working Papers 1910, National Bureau of Economic Research, Inc.
    9. Ms. Keiko Honjo & Mr. Benjamin L Hunt, 2006. "Stabilizing Inflation in Iceland," IMF Working Papers 2006/262, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Haubrich, Joseph G, 1993. "Consumption and Fractional Differencing: Old and New Anomalies," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 767-772, November.
    2. Cepii & Cepremap, 2001. "MARMOTTE : a Multinational Model," Working Papers 2001-15, CEPII research center.
    3. Jim Malley & Hassan Molana, 1999. "The Permanent Income Hypothesis Revisited," Dundee Discussion Papers in Economics 105, Economic Studies, University of Dundee.
    4. Willman, Alpo, 2007. "Sequential optimization, front-loaded information, and U.S. consumption," Working Paper Series 765, European Central Bank.
    5. Lee, Taeyol, 1993. "The excess smoothness puzzle in consumption," ISU General Staff Papers 1993010108000011471, Iowa State University, Department of Economics.
    6. MacDonald, Ronald & Molana, Hassan, 2004. "Can portfolio adjustments explain deviations of consumption from permanent income?: An empirical study of UK data," The North American Journal of Economics and Finance, Elsevier, vol. 15(3), pages 313-331, December.
    7. Brunila, Anne, 1997. "Current income and private consumption : Saving decisions : Testing the finite horizon model," Research Discussion Papers 6/1997, Bank of Finland.
    8. Jim Malley & Hassan Molana, 2002. "The Life-Cycle-Permanent-Income Model: A Reinterpretation and Supporting Evidence," Working Papers 2002_17, Business School - Economics, University of Glasgow.
    9. Olivier Allais & Loic Cadiou & Stéphane Dees, 2001. "Defining Consumption Behaviour in a Multi-Country Model," Working Papers 2001-02, CEPII research center.
    10. repec:zbw:bofrdp:1997_006 is not listed on IDEAS
    11. Christiano, Lawrence J. & Eichenbaum, Martin, 1990. "Unit roots in real GNP: Do we know, and do we care?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 7-61, January.
    12. James M. Nason, 1991. "The permanent income hypothesis when the bliss point is stochastic," Discussion Paper / Institute for Empirical Macroeconomics 46, Federal Reserve Bank of Minneapolis.
    13. repec:zbw:bofrdp:1995_015 is not listed on IDEAS
    14. Brunila, Anne, 1996. "Fiscal policy and private consumption: Saving decisions: Evidence from Finland," Bank of Finland Research Discussion Papers 28/1996, Bank of Finland.
    15. Takala, Kari, 1995. "Permanent income hypothesis and saving in Finland," Research Discussion Papers 15/1995, Bank of Finland.
    16. Jim Malley & Hassan Molana, "undated". "The Permanent Income Hypothesis Revisited: Reconciling Evidence from Aggregate Data with the Representative Consumer Behaviour," ICMM Discussion Papers 48, Department of Economics University of Strathclyde.
    17. Jim Malley & Hassan Molana, 2003. "The Life-Cycle-Permanent- Income Hypothesis: A Reinterpretation and Supporting Evidence," Dundee Discussion Papers in Economics 138, Economic Studies, University of Dundee.
    18. James C. Morley, 2007. "The Slow Adjustment of Aggregate Consumption to Permanent Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 615-638, March.
    19. Brunila, Anne, 1997. "Current income and private consumption: Saving decisions: Testing the finite horizon model," Bank of Finland Research Discussion Papers 6/1997, Bank of Finland.
    20. Takala, Kari, 1995. "Permanent income hypothesis and saving in Finland," Bank of Finland Research Discussion Papers 15/1995, Bank of Finland.
    21. Laurence Bloch & Françoise Maurel, 1991. "Consommation-revenu permanent : un regard d'économètre," Économie et Prévision, Programme National Persée, vol. 99(3), pages 113-144.
    22. R. MacDonald & Hassan Molana, 2000. "Does Consumption Deviate from the Permanent Income Path? An Empirical Study of UK Data," Dundee Discussion Papers in Economics 107, Economic Studies, University of Dundee.

    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ice:wpaper:wp83. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Central Bank of Iceland (email available below). General contact details of provider: https://edirc.repec.org/data/sedgvis.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.