What Drives Output Volatility? The Role of Demographics and Government Size Revisited

AbstractResearch background: Output volatility has potentially adverse consequences on the economy and the stabilizing role of fiscal policy is linked to the share of government size in an economy. Hence, given the relative large share of government in developing countries, government size is expected to play an important role in stabilizing output volatility.Purpose: This study examines the relationship between output volatility and government size in Nigeria. The study seeks to establish if government size mitigates output volatility in Nigeria.Research methodology: The study employs the Autoregressive Distributed Lag (ARDL) technique after conducting stationarity and co-integration tests.Results: The results of the ARDL estimate showed that government size lessens output volatility but the magnitude was insignificant. Further, the study found that volatility in aggregate government spending; international oil price and public debt were significant determinants of output volatility in Nigeria.Novelty: This showed that the automatic stabilization role of government size on output volatility could not be established. The automatic stabilization role of fiscal policy can be improved by increasing social security transfers (pension payment), payments of unemployment benefits and increasing civil servants minimum wage.

Download Full-text

On the Limits of Macroprudential Policy

The B E Journal of Macroeconomics ◽

10.1515/bejm-2018-0189 ◽

2020 ◽

Vol 0 (0) ◽

Author(s):

Marcin Kolasa

Keyword(s):

Monetary Policy ◽

Policy Instruments ◽

New Keynesian ◽

Output Volatility ◽

Macroprudential Policy ◽

Collateral Constraints ◽

Keynesian Model ◽

Additional Stabilization ◽

The Interest Rate

AbstractThis paper studies how macroprudential policy tools applied to the housing market can complement the interest rate-based monetary policy in achieving one additional stabilization objective, defined as keeping either economic activity or credit at some exogenous (and possibly time-varying) levels. We show analytically in a canonical New Keynesian model with housing and collateral constraints that using the loan-to-value (LTV) ratio, tax on credit or tax on property as additional policy instruments does not resolve the inflation-output volatility tradeoff. Perfect targeting of inflation and credit with monetary and macroprudential policy is possible only if the role of housing debt in the economy is sufficiently small. The identified limits to the considered policies are related to their predominantly intertemporal impact on decisions made by financially constrained agents, making them poor complements to monetary policy, which also operates at an intertemporal margin. These limits can be overcome if macroprudential policy is instead designed such that it sufficiently redistributes income between savers and borrowers.

Download Full-text

Declining output volatility in Germany: impulses, propagation, and the role of monetary policy

Applied Economics ◽

10.1080/00036840500359317 ◽

2005 ◽

Vol 37 (21) ◽

pp. 2445-2457 ◽

Cited By ~ 7

Author(s):

Ulrich Fritsche ◽

Vladimir Kuzin

Keyword(s):

Monetary Policy ◽

Output Volatility

Download Full-text

POLICY SWITCH AND THE GREAT MODERATION: THE ROLE OF EQUILIBRIUM SELECTION

Macroeconomic Dynamics ◽

10.1017/s1365100510000581 ◽

2011 ◽

Vol 16 (3) ◽

pp. 449-471 ◽

Cited By ~ 10

Author(s):

Efrem Castelnuovo

Keyword(s):

Equilibrium Selection ◽

Selection Strategy ◽

Relative Importance ◽

Good Luck ◽

Output Volatility ◽

Great Moderation ◽

Good Policy ◽

Sign Restriction ◽

Selection Of

“Good policy” and “good luck” have been identified as two of the possible drivers of the “Great Moderation,” but their relative importance is still widely debated. This paper investigates the role played by equilibrium selection under indeterminacy in the assessment of their relative merits. We contrast the outcomes of counterfactual simulations conditional on the “continuity” selection strategy–largely exploited by the literature–with those obtained with a novel “sign restriction” based strategy. Our results suggest that conclusions achieved under “continuity” are not necessarily robust to the selection of different–still economically sensible–equilibria. According to our simulations, the switch to a hawkish systematic monetary policy may very well induce an increase in output volatility. Hence, our sign restriction–selection strategy “resurrects” the inflation–output policy tradeoff.

Download Full-text

Government Size, the Role of Commitments*

Oxford Bulletin of Economics and Statistics ◽

10.1111/j.1468-0084.2011.00661.x ◽

2011 ◽

Vol 74 (4) ◽

pp. 532-546

Author(s):

Giuseppe Albanese ◽

Salvatore Modica

Keyword(s):

Government Size

Download Full-text

The stabilizing role of government size

Journal of Economic Dynamics and Control ◽

10.1016/j.jedc.2007.02.006 ◽

2008 ◽

Vol 32 (2) ◽

pp. 571-593 ◽

Cited By ~ 48

Author(s):

Javier Andrés ◽

Rafael Doménech ◽

Antonio Fatás

Keyword(s):

Government Size ◽

Role Of Government

Download Full-text

The role of institutions in output growth volatility-financial development nexus

Journal of Economic Studies ◽

10.1108/jes-04-2015-0063 ◽

2016 ◽

Vol 43 (6) ◽

pp. 910-927 ◽

Cited By ~ 9

Author(s):

Ibrahim Dolapo Raheem ◽

Kazeem Bello Ajide ◽

Oluwatosin Adeniyi

Keyword(s):

Financial Development ◽

Measurement Errors ◽

Output Growth ◽

Policy Implications ◽

Output Volatility ◽

Reverse Causality ◽

Data Set ◽

Content Type ◽

Growth Volatility

Purpose The purpose of this paper is to investigate the role of institutions in the financial development-output growth volatility nexus. It provides new channels through which financial development can dampen the output growth volatilities of the countries under investigation. Design/methodology/approach A comprehensive data set for 71 countries covering the period from 1996 to 2012 and the System GMM approach were used. The choice of the methodology is to deal with endogeneity issues such as measurement errors, reverse causality among other issues. Findings A number of findings were emanated from the empirical analysis. First, the estimates provided evidence of the volatility-reducing effect of financial development. Second, institutions do not have the same reducing influence on output growth volatility. Third, the interaction of financial development and institutions showed that the output volatility reduction arising from financial development is enhanced in the presence of improved institutions. Research limitations/implications The policy implications derived from this study are in twofolds: first, it is important for policymakers to formulate policies that would ensure and enhance the development of the financial sectors, since its importance in minimizing output volatility has been established. Second, institutional quality should be developed so as to further enhance the growth volatility-reducing influence of financial development. Particularly, institutions should be improved along the multiple dimensions captured in the analysis. Originality/value To the best knowledge, the novelty of this study to the literature is the introduction of institutions, which is hypothesized to increase the dampening effects of financial development in output growth volatility.

Download Full-text