The Laffer Curve of Macroeconomic Volatility and Growth: Can it be Explained by the Different Nature of Crises?

Garcı́a-Herrero, Alicia; Vilarrubia, Josep M.

doi:10.2139/ssrn.887100

Cited by 6 publications

(5 citation statements)

References 11 publications

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“…Their overall conclusion is that proper attention needs to be paid to the consequences of regime switches; otherwise, the models would seriously underestimate both the degree of uncertainty of inflation and its impact. In the same line, Henry and Olekalns (), García‐Herrero and Vilarrubia (), and Andraz and Norte () have shown that real uncertainty affects output growth differently in different output growth regimes which are characterized by expansion and contraction…”

Section: Introductionmentioning

confidence: 86%

Regime‐dependent effects of uncertainty on inflation and output growth: evidence from the United Kingdom and the United States

Chowdhury

Kundu

Sarkar

2018

Scottish J Political Eco

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Employing a bivariate regime switching model, this paper attempts to examine the regime-dependent effects of inflation uncertainty and output growth uncertainty on inflation and output growth. Using monthly data of the United Kingdom and the United States, we provide evidence that both nominal and real uncertainty exert regime-dependent impacts on inflation. Furthermore, in case of both the countries, inflation uncertainty has adverse impact on output growth mainly during the period of economic contraction. Also, for these two countries, it can be argued that higher real uncertainty significantly reduces output growth only in their respective low output growth regimes.

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Section: Introductionmentioning

confidence: 86%

Regime‐dependent effects of uncertainty on inflation and output growth: evidence from the United Kingdom and the United States

Chowdhury

Kundu

Sarkar

2018

Scottish J Political Eco

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“…They attribute these findings to the lack of stabilization policies, institutional safeguards, and insurance markets in less advanced nations that would allow them to neutralize the long-run effects of volatility. A different view is offered by Herrero and Vilarrubia (2005) who offer support to an inverted U-shaped relationship between real volatility and growth.…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic uncertainty, inflation and growth: Regime-dependent effects in the G7

Neanidis

Savva

2013

Journal of Macroeconomics

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We analyze the causal effects of real and nominal macroeconomic uncertainty on inflation and output growth and examine whether these effects vary with the level of inflation and location on the business cycle. Employing a bivariate Smooth Transition VAR GARCH-M model for the G7 countries during the period 1957-2009, we find strong nonlinearities in these effects. First, uncertainty regarding the output growth rate is related with a higher average growth rate mostly in the low-growth regime, supporting the theory of "creative destruction". Second, higher inflation uncertainty induces lower growth rates, increasingly so at the high-inflation regime. Third, real and nominal uncertainties have mixed effects on average inflation. Nevertheless, there is a trend in favour of the Cukierman-Meltzer hypothesis in the high-inflation regime. Our results can be viewed as offering an explanation for the often mixed and ambiguous findings in the literature.

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“…In fact, recent studies (Bhar and Hamori (2004), Chang (2012) and Chowdhury and Sarkar (2015), Chang and He (2010), Chen, Shen, and Xie (2008), Evans (1991), Evans and Wachtel (1993)) have emphasized the importance of incorporating regime switching behaviour of inflation while studying the relationship between inflation and inflation uncertainty. In the same line, Andraz and Norte (2013), Garcia‐Herrero and Vilarrubia (2007), Henry and Olekalns (2002), Chowdhury and Sarkar (2018) have examined the linkages between output growth and real uncertainty in different phases of economic growth. These studies stressed on the importance of the state of the economy while analysing the linkages between macroeconomic performances and their uncertainties.…”

Section: Review Of Empirical Studiesmentioning

confidence: 99%

Nonlinear relationships between inflation, output growth and uncertainty in India: New evidence from a bivariate threshold model

Chowdhury

Sarkar

Kundu

2020

Bulletin of Econ Res

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This study examines the relationships between inflation, output growth and their uncertainties for India over the period from 1971 to 2015. The paper extends the existing empirical literature by employing a regime switching model to understand the dynamics of the above linkages in different inflation and output growth regimes of India. Our estimated results indicate that inflation is a positive determinant of output growth in the low‐growth regime. Furthermore, output growth significantly boosts inflation during low‐inflation regime. Thus in a situation, when both inflation and output growth are low, moderate inflation is helpful to growth as well as rise in growth feeds back into inflation. On the other hand, during high‐inflation regime, nominal uncertainty significantly reduces inflation, thus providing evidence in support of the price “stabilization” motive of the monetary authority.

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The Laffer Curve of Macroeconomic Volatility and Growth: Can it be Explained by the Different Nature of Crises?

Cited by 6 publications

References 11 publications

Regime‐dependent effects of uncertainty on inflation and output growth: evidence from the United Kingdom and the United States

Regime‐dependent effects of uncertainty on inflation and output growth: evidence from the United Kingdom and the United States

Macroeconomic uncertainty, inflation and growth: Regime-dependent effects in the G7

Nonlinear relationships between inflation, output growth and uncertainty in India: New evidence from a bivariate threshold model

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