Technical Report The Deep Historical Roots of Macroeconomic Volatility

Tang, Sam Hak Kan  ,  Leung, Charles, Ka Yui

967pp.1 - 43 , 2016-04 , The Institute of Social and Economic Research, Osaka University
We present cross-country evidence that a country’s macroeconomic volatility, measured either by the standard deviation of output growth or the occurrence of trend-growth breaks, is significantly affected by the country’s historical variables. In particular, countries with longer histories of state-level political institutions experience less macroeconomic volatility in postwar periods. Robustness checks reveal that the effect of this historical variable on volatility remains significant and substantial after controlling for a host of structural variables investigated in previous studies. We also find that the state history variable is more important in countries with a higher level of macroeconomic volatility.

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