The determinants of macroeconomic volatility: A Bayesian model averaging approach

Spiliopoulos, Leonidas (2010): The determinants of macroeconomic volatility: A Bayesian model averaging approach.

Abstract

Bayesian model averaging is applied to robustly ascertain the determinants of various output volatility measures, including the downside semideviation of growth rates. Financial sophis- tication variables are found to have qualitatively different effects on volatility. The ratio of govern- ment expenditure to GDP exhibited a significant positive relationship with volatility and the trade share of GDP was positively related for a balanced dataset of developed and developing countries between 1960-89, and negatively related for developing countries between 1974-89. Other significant determinants were the black market premium, civil liberties, political rights, rule of law, and ratios of short-term debt and taxation to GDP.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macroeconomic volatility; Growth; Government policy; Bayesian model averaging; Model selection
• Subjects: F - International Economics > F0 - General > F00 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General

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