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Reevaluating the Link Between Volatility and Growth

Until the 1980's, business cycle and growth theory were viewed as separate and unrelated. However, the last two decades were characterized by growth in literature that examined the link between growth and short term fluctuations. Two primary differing views emerged; one suggesting a negative connection and the second suggesting a positive connection between volatility and growth. The purpose of this study is to attempt to understand the relationship between growth and output volatility. The focus will be to find a link between growth and output volatility either negative as Ramey and Ramey (1995) concluded or positive as Kormendi and Meguire (1985) claimed. This study will also expand on the work of Ramey and Ramey (1995) by considering a larger sample size and different time ranges by using a more recent Penn World Table dataset. The robustness of Ramey and Ramey's (1995) empirical study is examined. The first part of this paper examines the trade-off between growth and volatility by assuming that volatility differs among countries but not over time. The results show some support for the negative relationship using the updated data set. However, the evidence for the negative relationship is weaker than the Ramey and Ramey's (1995) strong evidence for negative relationship. A stronger relationship was found when data was sampled differently, using a moving period measure. These results show more support for the negative relationship. / A Thesis submitted to the Department of Economics in partial fulfillment of the
requirements for the degree of Master of Science. / Degree Awarded: Spring Semester, 2004. / Date of Defense: December 5, 2003. / Moving Periods, Penn World Table / Includes bibliographical references. / Stefan C. Norrbin, Professor Directing Thesis; Paul M. Beaumont, Committee Member; Don Schlagenhauf, Committee Member.
ContributorsYigit, Fatma Pinar (authoraut), Norrbin, Stefan C. (professor directing thesis), Beaumont, Paul M. (committee member), Schlagenhauf, Don (committee member), Department of Economics (degree granting department), Florida State University (degree granting institution)
PublisherFlorida State University
Source SetsFlorida State University
LanguageEnglish, English
Detected LanguageEnglish
TypeText, text
Format1 online resource, computer, application/pdf

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