engleski

Globalization, Capital Market Imperfections and Decline in Short-run Output Volatility of World Economies

This dissertation investigates the causes of recent declines in GDP growth volatility known as the “ Great Moderation” . Contrary to the existing literature, which concentrates mainly on the case of output volatility decline in the US, we took a broader perspective. In particular, we examined a large sample of economies to identify possible changes in GDP growth volatility over the period 1961-2005. The results of our empirical analysis suggest that: (a) a considerable number of countries experienced change(s) in short-run volatility over that period ; (b) in most cases the change(s) directed countries toward less volatile output ; (c) the decline in GDP growth volatility is not only characteristic of developed economies ; rather, it can be found in economies belonging to all income groups ; (d) there is no distinctive pattern of change in volatility that prevails among these countries ; (e) the timing of the detected break points is spread through all decades ; hence, it seems that the year 1984, in which the onset of lower volatility was detected for the US by the previous literature, is not a global turning point in volatility. As far as the cause(s) of the changes in GDP growth volatility is considered, these empirical findings cannot distinguish among the various existing explanations. However, our results open the possibility that the recent tendency towards attenuation of short-run output volatility in the world’ s national economies is caused by some common factor. In that respect, we put special emphasis on the potential role of economic globalization in that process. Based on existing theory, we present the mechanism by which some aspects of economic globalization may cause reduction in GDP growth volatility by reducing the strength of the Financial Accelerator. Finally, our empirical findings about the changes in GDP growth volatility are utilized to construct a country-level panel data sample to test the empirical relevance of the proposed mechanism, which is then assessed by means of panel regression analysis. The results of our empirical analysis support the tested hypothesis. In particular, the results suggest that the larger international diversification of economic agents’ net worth consequent upon globalization is associated with lower GDP growth volatility.

GDP growth volatility; the “ Great Moderation”; Financial Accelerator; globalization.

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