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Volatility Co-movement and the Great Moderation. An Empirical Analysis

Author

Listed:
  • Haroon Mumtaz

    (Queen Mary University of London)

  • Konstantinos Theodoridis

    (Bank of England)

Abstract

We propose an extended time-varying parameter Vector Autoregression that allows for an evolving relationship between the variances of the shocks. Using this model, we show that the relationship between the conditional variance of GDP growth and the long-term interest rate has become weaker over time in the US. Similarly, the co-movement between the variance of the long=term interest rate across the US and the UK declined over the 'Great Moderation' period. In contrast, the volatility of US and UK GDP growth appears to have become increasingly correlated in the recent past.

Suggested Citation

  • Haroon Mumtaz & Konstantinos Theodoridis, 2016. "Volatility Co-movement and the Great Moderation. An Empirical Analysis," Working Papers 804, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:804
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Vector-Autoregressions; Time-varying parameters; Stochastic volatility;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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