7/2012 Aurelijus Dabušinskas, Dmitry Kulikov and Martti Randveer. The impact of volatility on economic growth

Working Papers of Eesti Pank No. 7/2012

This paper investigates the impact of macroeconomic volatility on growth in a panel of 121 countries over the period 1980 to 2010. We confirm the Ramey and Ramey (1995) result that macroeconomic volatility is negatively related to economic growth using a different empirical methodology and a newer dataset. Among the issues that await further work are the interaction of financial development and
volatility, potential non-linearities of the impact of macroeconomic volatility on growth, and issues related to the endogeneity of growth and volatility in the context of empirical growth regression models.

JEL Code: E40, O40, C33

Keywords: economic growth, macroeconomic volatility, growth regressions, panel data

Corresponding author’s e-mail address: dmitry.kulikov [at] eestipank.ee

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The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank.