A Simple Decomposition of the Variance of Output Growth Across Countries
AbstractThis paper outlines a simple regression-based method to decompose the variance of an aggregate time series into the variance of its components, which is then applied to measure the relative contributions of productivity, hours per worker, and employment to cyclical output growth across a panel of countries. Measured productivity contributes more to the cycle in Europe and Japan than in the United States. Employment contributes the largest proportion of the cycle in Europe and the United States (but not Japan), which is inconsistent with the idea that higher levels of employment protection in Europe dampen cyclical employment fluctuations.
KeywordsIntensive margin, extensive margin, productivity, business cycles, variance decomposition.
JEL classificationC32, E24, E32