The “Great Moderation” in Portugal: GDP Volatility, Regime Changes and Business Cycles

This paper presents an empirical analysis of volatility in GDP real growth rates for Portugal over the period 1960-2010. The objectives of this paper are threefold: (1) to assess the occurrence of “the Great Moderation” in Portugal and identify the timings of volatility changes; (2) to analyse the time varying nature of volatility, in particular whether it has been subject to gradual shifts over time or one-off major shifts, as well as the degree of symmetry/asymmetry across different phases of the business cycle; (3) to analyse the dynamic pattern of (a)symmetric behaviour over the sample period. By adopting GARCH modelling strategy accounting for the occurrence of regime changes in both the trend and volatility, the results reveal a progressive “moderation” in Portugal, characterized by two regime changes in both growth rates and volatility. The results suggest that the impact of negative shocks on volatility exceeds that of positive shocks at least 62.0% over the sample period. However, these asymmetric effects show a decreasing pattern over the sample period, indicating less vulnerability of the economy to exogenous shocks.

The paper "Structural Breaks and Volatility of Gross Domestic Product: Evidence for Portugal" was replaced by this.