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Global output growth and volatility spillovers

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Abstract:

This article examines discernable patterns of real Gross Domestic Product (GDP) growth co-movements across 29 countries, using consistent time series data (1912–2008). Of these countries, only 12 are found to form three statistically significant groupings (i.e. G6-six Organization for Economic Co-operation and Development (OECD) European countries, G4-four Anglo-Saxon countries, and G2-two major Asian countries). One may then conclude that, inter alia, geographical proximity, cultural ties, and the level of socio-economic and financial ties among countries determine the global systematic co-movements of growth rates. Our results indicate that any recession in the US initially engulfs other Anglo-Saxon countries as well as G6 and G2 countries, before exerting its adverse knock-on effects to the rest of the world. A Multivariate Generalized Autoregressive Conditional Heteroscedasticity (MGARCH) model is also used to examine the transmission of GDP growth across these three groups and their corresponding volatility spillovers. We find significant bi-directional cross-mean spillovers between the G4 and G6 blocs. In terms of cross-volatility spillovers, the estimated persistence varies from a maximum 0.959 (G4–G6) to a minimum of 0.832 (G2–G4).

Keywords: C32; E23; E32; GDP growth; multivariate GARCH model; output co-movements; volatility spillovers

Document Type: Research Article

DOI: https://doi.org/10.1080/00036846.2011.608648

Affiliations: School of Economics, University of Wollongong, NSW, Australia

Publication date: 2013-02-01

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