The effect of recessions on the relationship between output variability and growth

This paper investigates the relationship between output volatility and growth using postwar real GDP data for the United States. We expand on recent research by Beaudry and Koop ( 1993), documenting the asymmetric effect of recessions on output growth. The results presented in this paper suggest that output volatility is highest when the economy is contracting. While we find that the economy expands most rapidly following a recession, this expansion is offset by the negative impact of output uncertainty.