Under the circumstances of the most recent and still undergoing severe economic recession in Greece, the question arises on the role of uncertainty as regards the country’s growth prospects. In order to assess the potential impact of real uncertainty on economic growth, this paper investigates the bidirectional link between output growth and real uncertainty for the case of Greece. We use quarterly GDP data covering the time period from 1975 to mid-2013, and so include the most recent period of still undergoing recession. We apply an extended GARCH-M model to be able to directly and simultaneously examine both directions of dependence between output growth and real uncertainty. We find that a negative and significant relation exists in both ways, hence providing a tool for policies in order to speed up economic recovery.
KeywordsReal UncertaintyOutput GrowthGARCHGreece
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