Declining output volatility in Germany: impulses, propagation, and the role of monetary policy

Authors: Fritsche, Ulrich1; Kuzin, Vladimir2

Source: Applied Economics, Volume 37, Number 21, Number 21/10 December 2005 , pp. 2445-2457(13)

Publisher: Routledge, part of the Taylor & Francis Group

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The decline in output volatility in Germany is analysed. A lower level of variance in an autoregressive model of output growth can be either due to a change in the structure of the economy (a change in the propagation mechanism) or a reduced error term variance (reduced impulses). In Germany the decline output volatility is due to a decline in the persistence of the growth process. This is in contrast to the US results, where a break in the variance seems to dominate the decline in persistence. A change in the conduct of monetary policy (the establishment of another monetary policy regime) could be part of an explanation for the change in propagation. Stochastic simulations with a New Keynesian DSGE model support the hypothesis.

Document Type: Research Article


Affiliations: 1: German Institute of Economic Research (DIW Berlin), Königin-Luise-Str. 5, D-14195 Berlin, Germany 2: Statistics and Econometric Methods, Goethe-University Frankfurt, Gräfstr. 78, D-60054 Frankfurt, Germany

Publication date: December 10, 2005

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