Short-term Volatility versus Long-term Growth: Evidence in US Macroeconomic Time Series

We test for a change in the volatility of 215 US macroeconomic time series over the period 1960-1996. We find that about 90% of these series have experienced a break in volatility during this period. This result is robust to controlling for instability in the mean and business cycle nonlinearities. Real variables have seen a reduction in volatility since the early 1980s, which is accompanied by lower but steadier output growth. Furthermore, nominal variables have seen temporary increases in their volatility around the early 1980s. This suggests the existence of a trade-off between short-term volatility and the long-term pattern of growth.