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Testing for Volatility Changes in US Macroeconomic Time Series

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  • M Sensier
  • D van Dijk

Abstract

We test for a change in the volatility of 214 US macroeconomic time series over the period 1959-1999. We find that about 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 an instantaneous break rather than gradual change. Nominal variables such as inflation and interest rates experienced multiple volatility breaks and witnessed temporary increases in volatility during the 1970s. Based upon this evidence, we conclude that the increased stability of economic fluctuations in a wide-spread phenomenon.

Suggested Citation

  • M Sensier & D van Dijk, 2003. "Testing for Volatility Changes in US Macroeconomic Time Series," Centre for Growth and Business Cycle Research Discussion Paper Series 36, Economics, The University of Manchester.
    • Handle: RePEc:man:cgbcrp:36
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