Volatility and growth

Viktoria Hnatkovska () and Norman Loayza ()

No 3184, Policy Research Working Paper Series from The World Bank

Abstract: The authors study the empirical, cross-country relationship between macroeconomic volatility and long-run economic growth. They address four central questions: 1) Does the volatility-growth link depend on country and policy characteristics, such as the level of development or trade openness? 2) Does this link reflect a statistically and economically significant causal effect from volatility to growth? 3) Has this relationship been stable over time and has it become stronger in recent decades? 4) Does the volatility-growth connection actually reveal the impact of crises rather than the overall effect of cyclical fluctuations? The authors find that macroeconomic volatility, and long-run economic growth are indeed negatively related. This negative link is exacerbated in countries that are poor, institutionallyunderdeveloped, undergoing intermediate stages of financial development, or unable to conduct counter-cyclical fiscal policies. They find evidence that this negative relationship actually reflects the harmful effect from volatility to growth. Furthermore, the authors find that the negative effect of volatility on growth has become considerably larger in the past two decades, and that it is mostly due to large recessions rather than normal cyclical fluctuations.

Keywords: Economic Conditions and Volatility; Financial Crisis Management&Restructuring; Markets and Market Access; Fiscal&Monetary Policy; Economic Theory&Research; Achieving Shared Growth; Fiscal&Monetary Policy; Governance Indicators; Financial Crisis Management&Restructuring; Economic Conditions and Volatility (search for similar items in EconPapers)
Date: 2004-01-01
New Economics Papers: this item is included in nep-fin and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (134)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... ered/PDF/WPS3184.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:3184

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().