Russia

Abstract

Would a particular country be willing to reduce volatility at the expense of lowering the long-term growth rate if there were a trade-off between volatility and growth? Fortunately, there is no such trade-off. As many studies have documented (see Aghion et al., 2004 for a recent survey of the literature) the relationship between volatility and growth is negative, that is, rapid growth is associated with lower volatility. This result holds if one compares fast- and slow-growing countries, as well as periods of fast and slow growth/recession in the same country. So, policies to promote growth, if successful, are likely to reduce volatility as well, even though the mechanism of such a spin-off is not well understood. Nevertheless, the volatility of macro variables cannot be totally explained by their growth rates: even when controlling for the average speed of change, there remain huge variations in volatility in various countries and periods.