Volatility and Growth

The Macro Content of PRSPs: Assessing the Need for a More Flexible Macroeconomic Policy Framework

“…There is a broad consensus that volatility in macroeconomic variables is likely to harm growth. Hnatkovska and Loayza (2003) have demonstrated empirically that macroeconomic volatility and growth are negatively correlated, and that this is especially true for poor countries which, inter alia, are unable to pursue counter-cyclical fiscal policies. With regard to volatility in specific macroeconomic variables, such as inflation, terms of trade and exchange rates, Driffill et al (1990) have shown theoretically that variability in inflation variables has a negative impact on growth.…”

Macroeconomic Volatility and Welfare in Developing Countries: An Introduction

“…The negative volatility-growth link was first documented empirically in Ramey and Ramey's seminal paper (1995) and further analyzed in Fatá s (2002), Acemoglu and others (2003), and Hnatkovska and Loayza (2005). These studies show that volatility's indirect welfare cost through reduced economic growth is magnified in countries that are poor, financially and institutionally underdeveloped, or unable to conduct countercyclical fiscal policies.…”

“…These studies show that volatility's indirect welfare cost through reduced economic growth is magnified in countries that are poor, financially and institutionally underdeveloped, or unable to conduct countercyclical fiscal policies. Hnatkovska and Loayza (2005) estimate that a one-standard-deviation increase in macroeconomic volatility (the difference between the output-gap variance of 1. All the papers are available on the conference website, www.cepr.org/meets/wkcn/1/1638/papers/ 2.…”

Long‐term Growth and Short‐term Volatility: The Labour Market Nexus*

“…Further evidence of a link between growth and cycles is provided by a number of empirical studies that report statistically significant correlations between output growth and output volatility using various cross-section and time series data. Following the seminal paper by Ramey and Ramey (1995), cross-country studies have consistently found that volatility exerts a significant negative impact on long-run (trend) growth, which is however stronger in poorer countries (see Martin and Rogers, 2000;Hnatkovska and Loayza, 2005;Kose et al, 2005). As to time series methods, using a univariate GARCH model on US data, Caporale and McKiernan (1996) find a positive effect, while Grier and Perry (2000) find no effect in a symmetric bivariate GARCH model of inflation and output growth, and Dawson and Stephenson (1997) reach the same conclusion from an examination of state level data.…”