Business cycle volatility, uncertainty and long-run growth

Using data for 24 OECD economies from 1961 to 1997 we investigate whether the empirical relationship between business cycle volatility and long-run growth is positive, as Blackburn (Economic Journal, Vol. 109, No. 1 (1999), pp. 67-77) suggests, or negative, the view of the UK and other governments. The existing empirical literature is ambiguous on this issue. Here we account for the disparate results and find a significant negative relationship. This relationship is found to depend crucially on the time dimension of the data. We also find that oil price volatility and inflation uncertainty, as indicators of world and general shocks, are robustly correlated with growth.