2024/01/18 by Badinger, Harald, Antonakakis, Nikolaos
paper · doi:10.57938/c6025e29-f8b9-4553-95d2-418f383b2b63
This paper considers the linkages between output growth and output volatility for the <br/>sample of G7 countries over the period 1958M2-2011M7, thereby paying particular attention <br/>to spillovers within and between countries. Using the VAR-based spillover index approach by <br/>Diebold and Yilmaz (2012), we identify several empirical regularities: i) output growth and <br/>volatility are highly intertwined, with spillovers taking place into all four directions; ii) the <br/>importance of spillovers has increased after the mid 1980s and reached unprecedented levels <br/>during the recent financial and economic crisis; iii) the US has been the largest transmitter <br/>of output and volatility shocks to other countries. Generalized impulse response analyses <br/>point to moderate growth-growth spillovers and sizable volatility-volatility spillovers across <br/>countries, suggesting that volatility shocks quintuplicate in the long run. The cross-variable <br/>effects turn out negative: volatilty shocks lead to lower economic growth, growth shocks <br/>tend to reduce output volatility. Our findings underline the increased vulnerability of the G7 <br/>countries to destabilizing shocks and their detrimental effects on economic growth, which are <br/>sizeably amplified through international spillover effects and the associated repercussions.