Title: Output gap dispersion persistence and convergence: A stochastic volatility approach
Authors: Serda Selin Ozturk - Istanbul Bilgi University (Turkey)
Thanasis Stengos - University of Guelph (Canada) [presenting]
Abstract: In empirical growth, the growth convergence hypothesis has been one of the main focal points of the active research. The main finding of the literature based on an analysis of (the mean function) of output gaps is that convergence in output gaps is hard to obtain and that most countries seem to follow divergent paths from each other. We use a stochastic volatility methodology based on sequential Efficient Importance Sampling (EIS) to examine the persistence of the unobserved volatility of output gaps and offer additional evidence that complements the findings of the mean based convergence approach. This is the first attempt in the literature to employ a stochastic volatility model to examine convergence. Our results confirm the results of weak convergence or lack of it altogether found in the literature using the mean function of output gaps.