the economic consequences of reduced fertilizer use a virtual pricing approach the virtual pricing approach is applied to perform an ex ante analysis of reduced chemical use on agricultural output input demand and profitability aggregate data on indiana agriculture spanning the 1950 86 period are used to estimate parameters of a normalized quadratic profit function using bayesian techiques empirical results on the response of substitute and complementary inputs to a 15 and a 30 fertilizer restriction are obtained and the ad valorem taxes required to accomplish such restriction are calculated

pest externalities from agricultural inputs agricultural inputs such as water pesticide and even time may have the unintended effect of stimulating some pest populations leading to crop losses a conceptual model is developed to contrast optimal use of pesticide and nonpesticide inputs with myopic use patterns which ignore pest externalities under most conditions optimal management is found to entail reduced input levels these issues are illustrated for imperial valley cotton using biological simulation correct calculation of the relative profitability of conventional and integrated pest management techniques such as a shortened growing season are found to depend crucially on whether pest externalities are taken into account

aid volatility policy and development summary we build on bulir and hamann s analysis of aid volatility bulir a hamann j 2003 aid volatility an empirical assessment imf staff papers 50 1 64 89 bulir a hamann j 2008 volatility of development aid from the frying pan into the fire washington dc imf paper submitted to this special section showing that the conclusions reached depend on the dataset used their argument that the poorest countries have the highest volatility appears not to be correct the impact of volatility on growth is negative overall but differs between positive and negative volatility the mix between responsive components of aid for example programme aid and proactive components for example technical assistance is important finally we conclude that measures which increase trust between donor and recipient and reductions in the degree of donor oligopoly reduce aid volatility without obviously reducing its effectiveness

to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

democracy volatility and economic development growth stability is an important objective because development requires sustained increases in income because volatility is costly for the poor and because volatility deters growth we study the determinants of average growth and its volatility as a two equation system and find that higher levels of democracy and diversification lower volatility whereas volatility itself reduces growth muslim countries instrument for democracy and measures of diversification identify volatility in contrast to the lack of consensus on the democracy growth relationship the democracy stability link is robust rather than focus on growth this paper forges an alternative link between democracy and development through the volatility channel

long term growth and short term economic instability when learning by doing is at the origin of growth the long run growth rate should be negatively related to the amplitude of the business cycle if human capital accumulation is increasing and concave in the cyclical component of production empirical evidence strongly supports this nding for industrialized countries and european regions using the standard control variables we nd that countries and regions that have a higher standard deviation of growth and of unemployment have lower growth rates the result does not come from an e ect of instability on investment the negative relation however does not hold for non industrialized countries for which learning by doing may not to be the main engine of growth 2000 elsevier science b v all rights reserved jel classixcation o40 e32

the rule of law and economic growth where are we summary it is widely assumed that the rule of law is essential for economic growth however the rule of law is clearly a multidimensional concept encompassing a variety of discrete components from security of person and property rights to checks on government and control of corruption we review the theory underlying these different causal mechanisms linking the rule of law to economic growth and provide an introduction to some outstanding measurement issues we find that the correlation among different components of the rule of law concept are not tight among developing countries and that some inferences about the effects of property rights protection may not be warranted

openness external risk and volatility implications for the compensation hypothesis a central assumption in the globalization literature is that economic openness generates economic insecurity and volatility based on this assumption schol ars of international political economy have proposed the compensation hypothesis which claims that globalization bolsters rather than undermines the welfare state by increasing public demand for social protection against externally generated eco nomic instability the openness volatility link is dubious however on both theoret ical and empirical grounds in this study i revisit the volatility assumption focusing on a crucial difference between openness and external risk in their effect on volatil ity my statistical analysis of a panel data set from 175 countries 1950 2002 finds a consistent effect of external risk on volatility of the major economic aggregates but a largely insignificant effect of openness these findings suggest that economic volatility may be a mistaken link in explaining the openness spending nexus calling for further research on the causal mechanisms linking the two the general growth of government in the post world war ii era is one of the most important empirical regularities in political science measured by general govern ment consumption or sectoral expenditures government size grew dramatically during most of the postwar period intrigued by this phenomenal government growth political scientists offered numerous accounts some viewing this growth as a corollary of economic phenomena such as modernization industrialization income distribution or fiscal illusion and others attributing government growth to political causes such as bureaucratization interest group politics and electoral competition 1

business cycles and long run growth in this survey we discuss the effect of macroeconomic fluctuations on long run growth from both a theoretical and empirical perspective we emphasize the opportunity cost approach which states that firms will intertemporally substitute productivity enhancing activities for regular production activity during recessions we provide aggregate evidence in favor of the opportunity cost approach copyright 1997 by oxford university press

optimal input trade policy under economic uncertainties in a small open economy this article theoretically analyses optimal input trade policy under economic uncertainties in a small open economy the benchmark model explains both key business cycle moments and asset prices of

agricultural product supplies and input demands regional comparisons governmental agencies at federal state and local levels in the united states are heavily involved in intervention in agricultural input and output markets to effect desired social goals the most pervasive intervention activities occur at the federal level they are available throughout the nation to most producers of specified commodities how

unfunded liabilities and uncertain fiscal financing we develop a rational expectations framework to study the consequences of alternative means to resolve the unfunded liabilities problem the projected exponential growth in federal social security medicare and medicaid spending with no known plan for financing the transfers resolution requires specifying a probability distribution for how and when monetary and fiscal policies will change as the economy evolves through the 21st century beliefs based on that distribution determine the existence of and the nature of equilibrium we consider policies that in expectation combine reaching a fiscal limit some distorting taxation modest inflation and some reneging on the government s promised transfers in the equilibrium inflation targeting monetary policy and debt targeting tax policy cannot anchor expectations on those target variables expectational effects are always present but need not have large impacts on inflation and interest rates in the short and medium runs in the economy s stationary distribution the capital stock may grow or shrink and substantial probability falls on little or no reneging

on the effectiveness and limits of fiscal stabilizers the smoothing impact of fiscal stabilizers proxied by government expenditures on business cycle volatility is studied for a panel of european union eu countries in the period 1970 1999 special emphasis is put on the investigation of possible nonlinearities in the relationship between gross domestic product gdp growth volatility and fiscal stabilizers the results show that the business cycle volatility smoothing effect of fiscal stabilizers may revert at high levels the results hold when using government revenues as a proxy for fiscal stabilizers

fertility volatility and growth abstract empirically growth rates are negatively correlated with birth rates they are also correlated with production risk we argue that these stylized facts are related and arise jointly from the decision of how many children to have in a risky environment

evaluating prior beliefs in a demand system the case of meat demand in canada an almost ideal demand system for meats is estimated using canadian data a bayesian approach is used to impose inequality restrictions on substitution elasticities via monte carlo integration and importance sampling in order to conform with prior beliefs about curvature and monotonicity restrictions and substitution relationships results are more consistent with the concavity and monotonicity restrictions from demand theory than with the added restriction that all meats are substitutes

pooling risk among countries suppose that international sharing risk worldwide or with large numbers of countries were costly how much risk sharing could be gained in small sets or pools of countries to answer this question we compute the means and variances of poolwide gross domestic product growth for all possible pools of any size drawn from a sample of 74 countries and compare them with the means and variances of consumption growth in each country individually from the difference we infer potential diversification and welfare gains as much as two thirds of the first best full worldwide welfare gains can be obtained in groupings of as few as seven countries the largest potential gains arise from pools consisting of countries in different regions and including countries with weak institutions we argue that international risk sharing fails to emerge because the largest potential gains are among countries that do not trust each other s willingness and ability to abide by international contractual obligations

endogenous growth and time to build the ak case abstract in this paper a continuous time ak model is fully analyzed under the time to build assumption the existence and uniqueness of a real balanced growth path as well as oscillatory convergence are proved transversality conditions and capital depreciation are highlighted moreover it has been shown how the introduction of the time to build assumption supports some interesting empirical evidences such as the negative link between mean output growth and output growth volatility finally numerical simulations are provided for different choices of the time to build delay in order to clarify the analytical results

from riches to rags and back institutional change financial development and economic growth in argentina since 1890 abstractargentina is the only country in the world that in 1900 was developed and in 2000 was developing although economic historians have identified and explored various possible explanations chiefly institutions political instability financial development inflation trade openness and international financial integration no study so far has attempted a comprehensive quantitative assessment of their relative importance this article tries to fill this gap using the power arch framework and annual data since 1896 to study the effects of these factors in terms of both growth and growth volatility the results highlight two main factors to understand the remarkable growth trajectory of argentina over the very long run financial development and institutions formal and informal political instability and stress the importance of differences in their short vis a vis long run behaviour

cyclical expenditure policy output volatility and economic growth this article provides an empirical assessment of the relation between the cyclicality of fiscal expenditure policy output volatility and economic growth using a cross section of 88 countries over the period 1960 to 2004 identification of the effects of endogenous cyclical expenditure policy is achieved by exploiting the exogeneity of countries political and institutional characteristics which we find to be relevant determinants of the cyclicality of expenditures there are three main results first both pro and countercyclical expenditure policy amplify output volatility much in a way like pure fiscal shocks second output volatility due to variations in cyclical and discretionary fiscal policy is negatively associated with economic growth third there is no direct effect of cyclicality on economic growth other than through output volatility

the link between output growth and volatility evidence from a garch model with panel data abstract estimation results from a dynamic panel garch model for g7 countries over the 1965 2007 period support that higher output growth is associated with higher volatility of the innovations to growth but higher growth does not lead to more economic uncertainty

the case for restricting fiscal policy discretion this paper studies the effects of discretionary fiscal policy on output volatility and economic growth using data for 91 countries we isolate three empirical regularities 1 governments that use fiscal policy aggressively induce significant macroeconomic instability 2 the volatility of output caused by discretionary fiscal policy lowers economic growth by more than 0 8 percentage points for every percentage point increase in volatility 3 prudent use of fiscal policy is explained to a large extent by the presence of political constraints and other political and institutional variables the evidence in the paper supports arguments for constraining discretion by imposing institutional restrictions on governments as a way to reduce output volatility and increase the rate of economic growth

the age distribution and business cycle volatility international evidence abstract we estimate the age distribution s effect on business cycle fluctuations across a large number of countries a 10 percentage point increase in the middle aged share of the population decreases output volatility by 15 percent for the average country

output value risk for commodity producers the uncertain benefits of diversification summary commodity price volatility has long been recognized as a main risk for commodity producers welfare and has led to diversification efforts less noticed has been the importance of commodity correlations and their increase after 2006 in the risk faced by producers to assess their impact we perform an empirical analysis of the market value of commodity producers output in a sample of 56 countries producing 26 commodities we find that diversification and correlations strongly explain output value volatility during 1987 2006 producers effectively specialized in a single commodity had an average output value volatility of 27 0 while producers of three or more commodities had a 12 7 volatility in this period average correlation was 8 and diversification was very effective in the 2007 12 period correlations averaged 26 and output volatilities for specialized and diversified commodities were 30 4 and 19 5 respectively thus reducing the benefit of diversification at a time of macroeconomic distress in 2013 16 output volatilities reverted to levels close to those in 1987 2006 as commodities decorrelated again our findings should be relevant to policy makers embarking in diversification efforts and in the analysis of macroeconomic risk of commodity producers

equilibrium consumption and precautionary savings in a stochastically growing economy abstract the derivation of a closed form solution for consumption based on the constant elasticity utility function in the presence of stochastic labor income has proved to be intractable this paper derives a closed form equilibrium relationship between consumption and wealth one that holds along a balanced growth path in a stochastic romer endogenous growth model by employing more general recursive preferences we can disentangle the coefficient of relative risk aversion from the intertemporal elasticity of substitution the effects of key structural parameters on equilibrium consumption and its tradeoff with leisure are analyzed a significant aspect of our analysis concerns the extent to which current risk in the economy is shared between labor and capital this plays an important role in determining the impact of risk on the economy in general and on consumption in particular formal analysis is supplemented with extensive numerical simulations

uncertainty in uk manufacturing evidence from qualitative survey data this paper generalizes the probability method of quantification carlson j and parkin m 1975 inflation expectations economica 42 123 138 to the variance facilitating the quantification of survey data which ask individuals whether they are uncertain an application evaluates time series and cross sectional proxies of uncertainty and considers how uncertainty affects investment

democracy diversification and growth reversals there exists convincing evidence that democratic countries are less volatile this conclusion is usually reached with respect to volatility as measured by the standard deviation of annual growth rates of per capita gdp which includes both low and high frequency fluctuations however recently several studies have documented that significant changes in trend growth such as growth accelerations that last a decade or similar periods of negative growth are quite common in this paper we ask whether democracy also has a stabilizing effect on trend volatility i e whether more democratic countries experience fewer and milder swings of trend growth we find a common phenomenon medium term reversals of growth that is periods of exceptionally high growth are on average followed by periods of exceptionally low growth and vice versa the propensity to experience large swings of trend growth is not uniform across countries less democratic countries are more susceptible to it when compared with factors commonly associated with volatility such as measures of quality of institutions macroeconomic policies and financial development we find that democracy is the most robust predictor of a country s propensity for growth reversals we construct a model in which non democracies have high barriers of entry for new firms this leads to less sectoral diversification fewer sectors are operated but more resources are channeled to each in an uncertain environment this leads to infrequent but large growth accelerations when one of the few sectors operated is successful however these accelerations are followed by large declines when fortunes change in favor of the missing sectors we present empirical evidence that confirms the positive relationship between democracy and industrial diversification

financial crises development and growth a long term perspective observed over long periods the upward path of the output of most economies occasionally takes jagged steps down more often than not these events are associated with a variety of crises including systemic banking stresses exchange rate crashes a burst of inflation and a restructuring or default on sovereign debt using a large panel of countries over a long period we document that crises are typically associated with lower medium term growth that may be a direct causal channel a reverse channel or the influence of some other factors on both growth and finance but they tend to go together given that the forces for convergence of income across countries are estimated to be slow going off track around a crisis will likely have long lived consequences for relative economic development

economic information versus quality variation in cross country data data quality in the penn world tables varies systematically across countries that have different growth rates and are at different stages of economic development thus intro ducing measurement error correlated with variables of economic interest we explore this problem with three examples from the literature showing that the problem appears to be minor in growth convergence regressions but serious in estimating the effect of income volatility on growth and in a cross country lest of the permanent income hypothesis the results suggest at the least a need for performing appropriate sensitivity tests before draw

long run growth and volatility which source really matters the aim of the article is to analyse the relationship between long run growth and business cycle volatility in particular the main purpose of this article is to identify which source of volatility is most detrimental to growth using cross country data from 1970 to 2000 and several indicators of volatility such as inflation exchange rate government expenditure output and investment volatility this article shows that although all these measures of volatility are remarkably harmful for growth business cycle investment volatility is the main source that hampers long run growth this relation is robust to different measures of business cycle and to different sub samples of countries

fiscal rules and fiscal counter cyclicality abstract we assess the effect of fiscal rules on a new time varying measure of fiscal counter cyclicality computed for 60 countries over the period 1980 2014 first we find that fiscal counter cyclicality is positive and has been increasing over time being larger in advanced economies second we find that fiscal rules reduce the degree of fiscal counter cyclicality the result is especially strong for debt based rules in advanced economies some design features hinder the degree of fiscal counter cyclicality such as escape clauses or enforcement procedures while others such as transparency foster it

two to tangle financial development political instability and economic growth in argentina abstract this paper studies the impact of financial liberalization on economic growth it contributes to this literature by using an innovative econometric methodology and a unique data set of historical series it presents power arch estimates for argentina for the period from 1896 to 2000 the main results show that the long run effect of financial liberalization on economic growth is positive while the short run effect is negative albeit substantially smaller interestingly we find that financial development affects growth only directly that is not through growth volatility

low input agriculture trends goals and prospects for input use low input agriculture lia has reemerged as an issue of the day it was last a topical issue during the 1970s energy crisis when the focus was on reducing our reliance on petroleumbased inputs klepper et al lia s current popularity is similarly motivated but supported by growing evidence of environmental and health risks from agrichemicals the drop in commodity prices and farm equity value which occurred between 1981 87 has rekindled interest in developing cost reducing technologies accumulated evidence on groundwater quality effects of nitrogen fertilizer and pesticides nielsen and lee has triggered numerous state and federal proposals and administrative actions with respect to agrichemicals and the environment concerns about costs of production and environmental effects are formalized in a recent u s department of agriculture usda statement which supports research and education on alternative farming systems that decrease or optimize the use of purchased inputs and that can increase net cash returns through decreased costs of production and may effectively improve the competitive position of the farmer and decrease the potential for adverse environmental impacts usda we question whether widespread employment of systems that concurrently meet these multiple objectives can occur under existing technology farm policy and economic conditions our argument rests on two basic assumptions profit maximization is a strong motivation for production decisions and externality issues are the driving force for public ncouragement of intervention to selectively reduce purchased input use we hypothesize that current high demand for agrichemicals coincides with profit maximizing levels of input use to the extent that empirical evidence supports this hypothesis the real debate involves the forms of intervention available to internalize externalities

the asymmetric effects of uncertainty on inflation and output growth we study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post war us data our results suggest that increased growth uncertainty is associated with significantly lower average growth while higher inflation uncertainty is significantly negatively correlated with lower output growth and lower average inflation both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude copyright 2004 john wiley sons ltd

sources of growth in french agriculture since the slowdown in the growth of world agricultural trade in 1980 the united states and the european community ec have engaged in a series of debates over their respective agricultural policies high producer prices and the general absence of production controls in europe have been of particular concern in the united states as world grain stocks have risen and the ec has emerged with substantial subsidies as a net cereals exporter levels of frustration have increased on both sides of the atlantic as the united states has responded with its own export enhancement payments and other costly policies with current positions difficult to sustain the united states and some members of the european community now seek means to limit their conflict and obtain relief from the high costs of their agricultural programs the reduction of grain stocks resulting from the drought affect

short and long run adjustments in dairy production a profit function analysis a dual profit model is developed to analyse the structure of dairy technology using farm level data for vermont potential short and long run effects of milk price reductions on output supply input demand farm size and profitability are studied the observed levels of the quasi fixed inputs family labour and herd size are found to be significantly lower than their optimal or long run equilibrium values which is consistent with a continuing shift towards fewer and larger dairy farms the analysis suggests that lower milk prices threaten the short run survival of small and medium size farms and reduce the optimal farm size in the long run

the effects of expected and unexpected volatility on long run growth evidence from 18 developed economies 1 introductionalthough there is disagreement about the magnitude many economists agree that business cycles have negative consequences for welfare in the short run by causing output to deviate from potential as a result most policymakers regard reducing volatility as a desirable goal however there is disagreement about the long run consequences of business cycles some models suggest that business cycle volatility should reduce long run growth in these models increased volatility increases risk reduces investment and slows the growth rate of output in addition volatility may reduce the diffusion rate of new technology which might reduce the long run growth rate hence business cycles have negative short run consequences by causing output to deviate from the trend and negative long run consequences by slowing the long run growth rate if these models are accurate then the welfare consequences of business cycles are more severe than previously thought an alternative view of the growth volatility relationship suggests that there may be a long run benefit to business cycles in these models increased volatility stimulates inventive activity which increases the long run growth rate reduced volatility will be beneficial in the short run but if reduced volatility decreases the long run growth rate then there are costs to stabilization as a result policymakers would face a trade off between business cycle volatility and long run growth in addition it is possible that the long run costs of stabilization policy might exceed the short run benefits this article sheds new light on the growth volatility relationship first this article focuses on two types of volatility expected volatility and unexpected volatility this allows a more thorough test of the two general hypotheses linking growth to volatility second this article empirically examines the relationship between growth and volatility for 18 industrialized nations over a 110 year period therefore the analysis avoids the problem of short time span of data this article proceeds as follows section 2 clarifies the relationship between the competing hypotheses as well as between expected and unexpected volatility section 3 analyzes the growth volatility relationship without making the distinction between expected and unexpected volatility section 4 uses generalized method of moments gmm and ordinary least squares ols along with panel data to estimate the effects of expected and unexpected volatility on growth section 5 concludes with suggestions for further research 2 the growth volatility relationshipthe view that business cycle volatility reduces the long run growth rate focuses on risk bernanke 1983 ramey and ramey 1991 and pindyck 1991 argue that volatility creates risk about future demand and that firms are unlikely to invest in new plants and equipment if they are unsure about the demand for their product the greater the volatility in output the more uncertain future demand becomes the greater the risk and the less likely firms are to invest this negative relationship between volatility and investment might lead to a negative relationship between growth and volatility increased volatility decreases investment which then slows the growth rates of the capital stock and output the effect would be especially pronounced if new technology is embodied in new capital goods ramey and ramey 1995 and macri and sinha 2000 have found results consistent with this view of the growth volatility relationship using aggregate data this view emphasizes the risks associated with unexpected changes in output when firms cannot accurately forecast the demand for their goods they reduce capital expenditures which reduces growth the view that business cycles might increase long run growth focuses on the opportunity cost of productivity enhancing activities peas bean 1990 and saint paul 1993 view firms as solving an intertemporal profit maximizing problem in which producing goods provides profits today but engaging in peas produces profits only in the distant future

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

do all sectoral shocks lead to aggregate volatility empirics from a production network perspective abstract productive diversification has long been acknowledged as a volatility reducing strategy yet recent theoretical contributions have shown that in strongly diversified economies idiosyncratic shocks could translate into aggregate volatility via the network of inter industry linkages by exploiting exogenous cross country sector variations in demand shocks during the 2008 great recession we provide empirical evidence that the network properties of a sector affected by an individual shock determine its propensity to transmit volatility to the rest of the economy more precisely shocks to sectors that are located in denser parts of a production network fade out over a large number of alternative paths of propagation due to substitution effects whereas shocks to sectors that are more influential within the network generate aggregate fluctuations through contagion effects we also find that the impact of sectoral shocks on aggregate volatility 1 is not conditional on sector level differences in trade intensity and 2 is larger for developing countries because they tend to have more isolated influential sectors and larger structural holes in their production network our results thus help consolidate the two opposite views in the literature on the impact of productive diversification on aggregate volatility

financial openness and business cycle volatility abstract this paper discusses whether the integration of international financial markets affects business cycle volatility in the framework of a new open economy macro model we show that the link between financial openness and business cycle volatility depends on the nature of the underlying shock empirical evidence supports this conclusion our results also show that the link between business cycle volatility and financial openness has not been stable over time

how to take into account vulnerability in aid allocation criteria and lack of human capital as well improving the performance based allocation summary this paper considers why and how the performance based allocation pba used in multilateral development banks and in particular at ida could be improved by taking the structural handicaps of eligible countries into account the pba relies on a debatable definition of performance it does not meet the equity concern raised by the existence of structural handicaps to growth it neglects the lessons of the aid effectiveness literature finally it suffers from some opacity we show how it is possible to increase the share of specific groups of countries such as sub saharan africa or post conflict states in a transparent manner

does product complexity matter for firms output volatility abstract with this paper we provide the first micro level evidence on the linkage between firm complexity and volatility by defining product complexity a la hausmann and hidalgo 2009 we find that a higher complexity level of a firm s product basket is associated to a reduction of its output fluctuations this evidence is robust to the control for omitted variables sample selection and to the use of alternative volatility and complexity indicators across similar firms active in different sectors and regions both technological factors and product market conditions explain the effect of complexity on volatility however within narrowly defined sectors and locations the complexity volatility nexus fully reflects the role of the human capital content of firms product baskets

an empirical refinement of the relationship between growth and volatility the link between business cycle volatility and the long run growth rate has received increasing attention in the literature over the last ten years yet neither is there a theoretical consensus nor consistent empirical evidence that would lead us to believe the relationship is positive negative or nonexistent either within broadly defined regions or over time this study investigates a possible cause for this phenomenon what we find is that out of 14 popularly defined sub regions only 7 can be constrained over time within the respective sub region while only two broadly defined regional classifications are justified we did find that the grouping of oecd countries is statistically valid but only if the relationship is allowed to vary over time we suggest a refinement of the current empirical work that takes into account both more narrowly defined regional and time parametric heterogeneity

asymmetry and uncertainty in capital formation an application to oil investment theories of irreversible investment suggest a negative relation between investment and uncertainty and nonlinear adjustment costs open for asymmetries in the adjustment of fixed capital we propose an econometric modelling approach to estimate and test the key predictions of modern investment theory including asymmetric dynamics and various uncertainty indicators our application on a data set from the oil industry offers empirical support for both asymmetric dynamics and uncertainty in oil and gas investment

making monetary policy objectives and rules what is it that monetary policy makers do and how do they do it the simple answer is that a central banker moves interest rates in order to maintain steady real growth and stable prices in this essay i examine the issues that arise in framing the problem faced by monetary policy makers i begin with a discussion of how over the past decade or so central banks have been made more independent and more accountable the result has been the virtual elimination of the inflation bias problem that is caused by political interference in the monetary policy process and better overall macroeconomic performance the essay proceeds with an example of a formal version of the policymakers problem describing their objectives and the information they need to formulate a policy rule i conclude with a discussion of a simple versus complex policy rules the impact of uncertainty on policy making and how central bankers use formal modelling in making their day to day decisions copyright 2000 by oxford university press

on the welfare cost of economic fluctuations in developing countries macroeconomic fluctuations are much stronger in developing countries than in the united states yet while a large literature debates the welfare cost of economic fluctuations in the united states it remains an open question how large that cost is in developing countries using several models we provide such a measure we find that the welfare cost of consumption volatility per se is far from trivial and averages a substantial multiple of the corresponding u s estimate moreover in many poor countries the welfare gain from eliminating volatility may in fact exceed the welfare gain from an additional percentage point of growth forever

volatility and slow technology diffusion abstract i study the effects of uncertainty on technology adoption and thereby on volatility and growth i present an analytically tractable model in which i uncertainty about the returns to adoption delays technology diffusion and ii the mean and volatility of output growth are jointly determined in equilibrium i then test the key predictions of the model by studying the introduction of three major information and communication technologies icts computers internet and cell phones i find that countries with more volatile growth rates of real gdp per capita have higher time adoption lags and lower average growth as predicted by the model

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

monetary instability the predictability of prices and the allocation of investment an empirical investigation using u k panel data it is often argued that monetary instability reduces the informational content of market signals and thereby hinders the efficient allocation of investment in this paper we use a signal extraction framework to give empirical content to this idea in particular we show why this framework predicts that as monetary uncertainty decreases the cross sectional distribution of investment widens we then explore this hypothesis using panel data information for uk companies over twenty years our data generally support the view that monetary instability may affect investment allocation through its effect on the predictability of prices this abstract was borrowed from another version of this item

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

explaining grain and oilseed price volatility the role of export restrictions this study examines the impact that export restrictions have had on price volatility food price volatility causes planning problems for policy makers and is disruptive to the food supply chain an increasingly common response to stabilizing domestic prices is to implement export restrictions however if the country is a large enough exporter the restriction can exacerbate global price volatility using price data on maize wheat rice and soy we estimate the effect of export taxes and quantitative restrictions as well as other macroeconomic variables on price volatility first we use a univariate structural time series approach to remove regularities such as cycles and trends to yield an estimate of filtered price volatilities second we regress the estimated volatilities from the first stage on a set of explanatory variables using a generalized method of moments gmm approach the results from the gmm regression show that export restrictions implemented between 2006 and 2011 increased price volatility for wheat and rice but not maize and soybean simulation results show that the contribution of export restrictions to price volatility is the same order of magnitude as key macroeconomic variables

on the existence of balanced growth equilibrium the authors characterize the class of dynamic models that allow for the most commonly used types of sustained economic growth balanced and asymptotically balanced they show that under a constant returns to scale technology asymptotically constant discount rate and asymptotically constant elasticity of marginal felicity are not only necessary but also sufficient conditions for the existence of a n asymptotically balanced growth equilibrium path the authors provide examples of recursive utility models that accept a n asymptotically balanced growth equilibrium and discuss their implications on cross country differences in growth rates as well as on savings behavior and wealth distribution copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

explaining output volatility the case of taxation this paper presents strong empirical evidence that the observed heterogeneity of output volatility across countries and over time is partly endogenous in particular based on a closed form solution we obtain a long run equilibrium relationship between taxes and output volatility in the stochastic neoclassical growth model by showing that asymptotically the variance of output growth rates is affected by the level of taxes without affecting the mean we estimate the tax semi elasticities on output volatility and provide convincing empirical evidence that taxes are important to understand differences in output volatility among oecd countries

the cost of business cycles under endogenous growth robert e lucas jr argued that the welfare gains from reducing aggregate consumption volatility are negligible subsequent work that revisited his calculation continued to find small welfare benefits further reinforcing the perception that business cycles do not matter this paper argues instead that fluctuations can affect welfare by affecting the growth rate of consumption i show that fluctuations can reduce growth starting from a given initial consumption which can imply substantial welfare effects as lucas himself observed empirical evidence suggests the welfare effects are likely to be substantial about two orders of magnitude greater than lucas original estimates

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association

macroeconomic volatility trade and financial liberalization in africa this paper examines the effects of financial and trade liberalization on growth volatility of real output and consumption in africa our results suggest trade liberalization is associated with greater output and consumption growth volatility while financial liberalization increases the efficacy of consumption smoothing and stabilizes income and consumption growth in addition we find financial market depth and institutional quality operate jointly with trade and financial openness to reduce volatility in output and consumption growth there is also evidence that good institutions which foster low inflation levels and volatility promote consumption and output growth stability

aid and performance a reassessment two visions of aid effectiveness and allocation are compared the first corresponding to the new aid paradigm argues that aid is only effective if domestic policies are appropriate the second in contrast argues that aid effectiveness depends on the external and climatic environment the worse this environment or the more vulnerable the recipient countries the greater the effectiveness of aid cross sectional econometric tests related to gdp growth on two 12 year pooled periods clearly favour the second view the two views can be reconciled through the principle of performance based aid allocation where performance is defined as outcomes adjusted for the impact of environmental factors performance can then be measured in several manners which are subject to comparison one approach would lead one to allocate more aid the worse the external environment is for a given policy and the better the policy is for a given environment

winners and losers in the commodity lottery the impact of terms of trade growth and volatility in the periphery 1870 1939 abstract most countries in the periphery specialized in the export of just a handful of primary products for most of their history some of these commodities have been more price volatile than others and those with more volatility have grown much more slowly relative to the industrial leaders and to other primary product exporters this fact helps explain the growth puzzle noted by easterly kremer pritchett and summers more than a decade ago that the contending fundamental determinants of growth institutions geography and culture exhibit far more persistence than do the growth rates they are supposed to explain using a new panel database for 35 countries this paper estimates the impact of terms of trade volatility and secular change on country performance between 1870 and 1939 volatility was much more important for growth than was secular change and accounts for a substantial degree of the divergence in incomes within the sample of small commodity dependent periphery nations as well as under performance of the periphery as a whole relative to such nations as the us and western europe or core one channel of impact seems to be the adverse effect of volatility on foreign investment it appears that the terms of trade effects were asymmetric between core and periphery