Cross-Country Evidence on the Link between Volatility and Growth

Cross-Country Evidence on the Link between Volatility and Growth

This paper presents empirical evidence against the standard dichotomy in macroeconomicsthat separates growth from the volatility of economic fluctuations. In a sample of 92 countries as well as a sample of OECD countries, we find that countries with higher volatility have lower growth. The addition of standard control variables strengthens the negative relationship. We also find that government spending-induced volatility is negatively associated with growth even after controlling for both time- and country-fixed effects.

Gary Ramey and Valerie A. Ramey

American Economic Review

December 1995

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