Department of Economics and Business Economics

Olaf Posch

On the non-causal link between volatility and growth

Research output: Working paperResearch


  • Wp09 10

    Final published version, 360 KB, PDF document

  • Olaf Posch
  • Klaus Wälde, University of Mainz, Germany
  • School of Economics and Management
A model highlighting the endogeneity of both volatility and growth is presented.
Volatility and growth are therefore correlated but there is no causal link from volatility
to growth. This joint endogeneity is illustrated by working out the effects through which
economies with different tax levels di er both in their volatility and growth. Using a
continuous-time DSGE model with plausible parametric restrictions, we obtain closedform
measures of macro volatility based on cyclical components and output growth
rates. Given our results, empirical volatility-growth analysis should include controls in
the conditional variance equation. Otherwise an omitted variable bias is likely.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages39
Publication statusPublished - 2009

    Research areas

  • Tax effects, Volatility measures, Poisson uncertainty, Endogenous cycles and growth, Continuous-time DSGE models

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