Volatility and growth: a not so straightforward relationship

Abstract

This paper is motivated by the conflicting theories and empirical evidence regarding the relationship between business cycle volatility and economic growth. The average reported effect of volatility on growth is negative, but the empirical estimates vary substantially across studies. We identify the factors that explain the heterogeneity of the estimates by conducting a meta-analysis. Our evidence suggests that researchers' choices regarding the measure of volatility, the control set of the estimated equation, the estimation methods, and the data characteristics play a significant role in the total outcome. Finally, the literature is found to be free of publication bias