This paper studies the empirical, cross-country, relationship between macroeconomic volatility and long-run economic growth. It addresses four central questions. The first is whether the volatility-growth link depends on country and policy characteristics, such as the level of development or trade openness. The second one is whether this link reflects a statistically and economically significant causal effect from volatility to growth. The third question concerns the stability of this relationship over time and whether it has become stronger in recent decades. And the fourth is whether the volatility-growth connection actually reveals the impact of crises rather than the overall effect of cyclical fluctuations. We find that indeed macroeconomic volatility and long-run economic growth are negatively related. This negative link is exacerbated in countries that are poor, institutionally underdeveloped, undergoing intermediate stages of financial development, or unable to conduct countercyclical fiscal policies. We find evidence that this negative relationship actually reflects the harmful effect from volatility to growth. Furthermore, we find that the negative effect of volatility on growth has become considerably larger in the last two decades and that it is mostly due to large recessions rather than normal cyclical fluctuations. We thank Megumi Kubota for able research assistance in the preparation of the database used in

Abstract. This paper explores the links between cyclical fluctuations and long-run growth in the context of an endogenous growth model with aggregate demand externalities. In this model, aggregate demand and growth rates are positively correlated. In the presence of exogenous cyclical shocks, the model is able to generate persistent fluctuations through the effects that business cycles have on aggregate demand, profits and technological progress. Persistence becomes a measure of the response to business cycles of growth-related variables. Empirical evidence from a large sample of countries suggests that there is indeed a correlation between how persistent fluctuations are and the long-term growth rates of GDP. JEL: E3, O4. I would like to thank the Editor, an Associate Editor and a referee for all their comments and

The paper presents a model of endogenous growth in which firms are modeled as boundedly-rational, locally interacting, agents. Firms produce a homogeneous good employing technologies located in an open-ended technological space and are allowed to either imitate existing similar practices or to locally explore the technological space to find new, more productive, techniques. We first identify sufficient condi-tions for the emergence of empirically plausible GDP time-series characterized by self-sustained growth. Then, we study the trade-off between individual rationality and collective outcomes by providing an example in which more rational agents sys-tematically perform worse than less rational ones.

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Using ideas from the endogenous growth literature, we present a model of the endogenous determination of productivity growth based on individual worker decisions about human capital investment. We calibrate a version of the model to match long run growth facts from the US and study the business cycle properties of this model. This approach offers improvements along several dimensions over standard exogenous growth methodologies. Most importantly, our stochastic endogenous growth model generates much greater serial corre-lation in output growth and labor supply volatility relative to its real business cycle counterpart. We conclude that using the extra discipline of reproducing the trend productivity growth features of the data endogenously constitutes an important missing component from the real business cycle approach. 1

Abstract. This paper studies the link between business cycles and long-term growth rates. We present empirical evidence that uncovers interesting and significant interactions between cycles and growth. We show that business cycles cannot be considered as temporary deviations from a trend and that there is a strong positive correlation between the persistence of short-term fluctuations and long-term growth rates. A simple endogenous growth model where business cycles affect growth can easily replicate this correlation. We then study the link between volatility and growth. We show that countries with more volatile fluctuations display lower long-term growth rates. We also find evidence that there is a nonlinearity in this relationship. The effect of business cycles on growth is much larger for poor countries or countries with a lower degree of financial development. This paper is prepared for the 5th annual conference of the Central Bank of Chile, November 29-30, 2001. I would like to thank Ilian Mihov for usefule comments and suggestions. The most recent version of the paper can be found at

* We thank TNS for providing U.S. advertising data. The assistance of Richard Herbert (Europanel) is especially acknowledged. The authors also thank Kris Helsen for his help in acquiring information on the introduction date of commercial television, and Financial support by

In this paper wepur an appr h based on economic theor to illustr possible shorxof widely-used detr-used methods. We analyze a simple model of economic gr wth and business cycles in which investment and technical pr ar stochastic. The Hodr k-Prxand theBaxterx- filter ar shown to detect spur business cycles which ar notr elated to actual cycles in the model. Our r cast doubts on the validity of commonly-accepted stylized business cycle facts. We also discuss therx of business-cycle dating based on indicator of economic activity, as e.g. applied by the NBER, and the detrx- rrx 1

This note shows that differences (across sectors or regions) in the effective price of inputs results in low measured total factor productivity (TFP). 1

Not to be Quoted without Author’s Permission We show that, for a class of linear and multivariate Markov-switching models, exact calculation of the Beveridge-Nelson (BN) trend/cycle components is possible. The key to exact BN trend/cycle decomposition is to recognize that the latent first-order Markov-switching process in the model has an AR(1) representation, and that the model can be cast into a state-space form. Given the state-space representation, we also show that impulse-response analyses can be done with respect to an asymmetric discrete shock as well as to a symmetric continuous shock. The methodologies developed are applied to Kim, Morley, Piger’s (2005) univariate Markov-switching model of real GDP with a post-recession ‘bounce-back ’ effect and Cochrane’s (1994) vector error correction model of real GDP and real consumption extended to incorporate Markov switching. Based on the parameter estimates, the calculated BN trend/cycle components, and the impulse-response analyses for each of these empirical models, we raise the possibility that the persistence of real GDP might have increased since the mid-1980’s in the U.S.