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Measuring the international dimension of output volatility

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Abstract
This paper studies output fluctuations in a panel of OECD economies with the aim to decompose the evolution in output volatility into domestic and international factors. To this end we use a factor-augmented dynamic panel model with both domestic and international shocks and spillovers between countries through trade linkages. Changes in the volatility of output growth can be due to time-varying sensitivity to these shocks, changes in the propagation mechanism or shifts in the variances of shocks. We explicitly model cross-sectional dependence in the variance equation by specifying a common factor structure in the volatility of domestic shocks. The results show that while the size of international shocks and spillovers does not decrease in most countries, the volatilities of domestic shocks share a clear common decreasing trend. Hence, the ‘Great Moderation’ appears to be mainly driven by a decline in the volatility of domestic shocks rather than smaller international shocks.
Keywords
Volatility, Business cycle, Bayesian model selection

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Chicago
Everaert, Gerdie, and Martin Iseringhausen. 2018. “Measuring the International Dimension of Output Volatility.” Journal of International Money and Finance 81: 20–39.
APA
Everaert, Gerdie, & Iseringhausen, M. (2018). Measuring the international dimension of output volatility. JOURNAL OF INTERNATIONAL MONEY AND FINANCE, 81, 20–39.
Vancouver
1.
Everaert G, Iseringhausen M. Measuring the international dimension of output volatility. JOURNAL OF INTERNATIONAL MONEY AND FINANCE. 2018;81:20–39.
MLA
Everaert, Gerdie, and Martin Iseringhausen. “Measuring the International Dimension of Output Volatility.” JOURNAL OF INTERNATIONAL MONEY AND FINANCE 81 (2018): 20–39. Print.
@article{8553046,
  abstract     = {This paper studies output fluctuations in a panel of OECD economies with the aim to decompose the evolution in output volatility into domestic and international factors. To this end we use a factor-augmented dynamic panel model with both domestic and international shocks and spillovers between countries through trade linkages. Changes in the volatility of output growth can be due to time-varying sensitivity to these shocks, changes in the propagation mechanism or shifts in the variances of shocks. We explicitly model cross-sectional dependence in the variance equation by specifying a common factor structure in the volatility of domestic shocks. The results show that while the size of international shocks and spillovers does not decrease in most countries, the volatilities of domestic shocks share a clear common decreasing trend. Hence, the {\textquoteleft}Great Moderation{\textquoteright} appears to be mainly driven by a decline in the volatility of domestic shocks rather than smaller international shocks.},
  author       = {Everaert, Gerdie and Iseringhausen, Martin},
  issn         = {0261-5606},
  journal      = {JOURNAL OF INTERNATIONAL MONEY AND FINANCE},
  keyword      = {Volatility,Business cycle,Bayesian model selection},
  language     = {eng},
  pages        = {20--39},
  title        = {Measuring the international dimension of output volatility},
  url          = {http://dx.doi.org/10.1016/j.jimonfin.2017.11.001},
  volume       = {81},
  year         = {2018},
}

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