The Decline in German Output Volatility: A Bayesian Analysis

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Empirical evidence suggests a sharp volatility decline of the growth in U.S. gross domestic product (GDP) in the mid-1980s. Using Bayesian methods, we analyze whether a volatility reduction can also be detected for the German GDP. Since statistical inference for volatility processes critically depends on the specification of the conditional mean we assume for our volatility analysis different time series models for GDP growth. We find across all specifications evidence for an output stabilization around 1993, after the downturn following the boom associated with the German reunification. However, the different GDP models lead to alternative characterizations of this stabilization: In a linear AR model it shows up as smaller shocks hitting the economy, while regime switching models reveal as further sources for a stabilization, a narrowing gap between growth rates during booms and recessions or flatter trajectories characterizing the GDP growth rates. Furthermore, it appears that the reunification interrupted an output stabilization emerging already around 1987. Terms of use: Documents in

Does Export Openness Increase Firm‐level Output Volatility?

“…Studying the German case is interesting as the evolution of aggregate output volatility in Germany has differed from the patterns observed in other industrialised countries, where volatility has been on a trend decline. Output volatility in Germany followed the trend decline as well, but it increased temporarily in the period following reunification (Buch et al, 2004; Aßmann et al, 2006). We check whether similar patterns are found in firm‐level data.…”

Time-Varying Dynamics of the German Business Cycle: A Comprehensive Investigation

“…This gradual decline is confirmed by Fritsche and Kuzin (2005), who attribute it, however, to an increasing persistence of the GDP growth process caused by a change in the conduct of monetary policy. In contrast, Buch, Doepke, and Pierdzioch (2004) and Aßmann, Hogrefe, and Liesenfeld (2009) present evidence in favor of a discrete transition to a lower volatility state in the early 1990s. While Buch et al (2004) also ascribe the declining volatility to a change of monetary policy, Aßmann et al (2009) highlight the importance of shifts in the composition of GDP.…”

“…In contrast, Buch, Doepke, and Pierdzioch (2004) and Aßmann, Hogrefe, and Liesenfeld (2009) present evidence in favor of a discrete transition to a lower volatility state in the early 1990s. While Buch et al (2004) also ascribe the declining volatility to a change of monetary policy, Aßmann et al (2009) highlight the importance of shifts in the composition of GDP. Finally, Mills and Wang (2003) and Summers (2005) find a single structural break in the residual variances of the growth process taking place already in the mid-1970s.…”

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“…The evolution of aggregated output volatility in Germany has differed from the patterns observed in other industrialized countries, where volatility has been on a trend decline. Output volatility in Germany followed the trend decline, but it increased temporarily in the period following re-unification (Aßmann et al 2006, Buch et al 2004). We test whether similar patterns are found in firm-level data.…”