Testing for Volatility Changes in U.S. Macroeconomic Time Series

Marianne Sensier · Dick J.C. van Dijk

256 citations0/0 files storedThe Review of Economics and Statistics

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Monetary Policy and Economic Impact Financial Risk and Volatility Modeling Market Dynamics and Volatility

Abstract

We test for a change in the volatility of 214 U.S. macroeconomic time series over the period 1959–1999. We find that approximately 80% of these series have experienced a break in unconditional volatility during this period. Even though more than half of the series experienced a break in conditional mean, most of the reduction in volatility appears to be due to changes in conditional volatility. Our results are robust to controlling for business cycle nonlinearity in both mean and variance. Volatility changes are more appropriately characterized as instantaneous breaks than as gradual changes. Nominal variables such as inflation and interest rates experienced multiple volatility breaks and witnessed temporary increases in volatility during the 1970s. On this evidence, we conclude that the increased stability of economic fluctuations is widespread.

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References

2000Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory*1993Tests for Parameter Instability and Structural Change With Unknown Change Point n.d.Output Fluctuations in the United States: What Has Changed since the Early 1980's?2002Has the Business Cycle Changed and Why?1999Has the U.S. Economy Become More Stable? A Bayesian Approach Based on a Markov-Switching Model of the Business Cycle 2001The Long and Large Decline in U.S. Output Volatility 1997Estimation of a Change Point in Multiple Regression Models 1994Evidence on Structural Instability in Macroeconomic Time Series Relations

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