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Empirical Economics

, Volume 56, Issue 4, pp 1231–1249 | Cite as

Medium-term macroeconomic volatility and economic development: a new technique

  • Sam Hak Kan TangEmail author
Article
  • 92 Downloads

Abstract

A key question in development economics is why developing countries as a collective group experience so much growth volatility. This paper introduces a new technique to measure medium-term macroeconomic volatility that is defined by the trend-growth volatility of output. It shows that medium-term volatility, \(\sigma _{\mathrm{MT}}^2 \), can be derived by subtracting the average short-term volatility, \(\left( {1/n} \right) \sum _j^n \sigma _{Sj}^2 \), from the total variance of output growth, \(\sigma _{\mathrm{LT}}^2 \). Applying this new measure to the World Bank’s output data reveals an inverted-U shaped relationship between medium-term volatility and economic development, indicating that economic development is likely to increase trend-growth volatility for emerging low-income countries.

Keywords

Medium-term macroeconomic volatility Business-cycle volatility Trend-growth breaks Structural breaks Economic fluctuations Economic development 

JEL Classification

O47 O11 E32 

Notes

Acknowledgements

I am grateful to three anonymous referees and the Coordinating Editor, Robert Kunst, for their insightful comments and suggestions. This paper is also improved by comments from Ken Clement, Michael Jetter, Rod Tyers and participants of the UWA Economics Brown-Bag Seminar and the 2017 Asian Meeting of Econometrics Society. All remaining errors are my own.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2017

Authors and Affiliations

  1. 1.Business SchoolThe University of Western AustraliaCrawleyAustralia

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