Economic Freedom and Economic Volatility
نویسندگان
چکیده
Theory suggests that economic freedom—measured by the Economic Freedom of the World Index (EFW) -may increase or decrease economic volatility. Similar to previous literature, we empirically test the relationship between economic freedom and economic volatility, but we differ from the literature in how we account for (1) changes in EFW, and (2) the nonlinear relationship between freedom and volatility. We find economic freedom, with the exception of government size, is generally negatively related to economic volatility; that is, as a nation’s economic freedom increases, macroeconomic volatility decreases. However, there appears to be a nonlinear effect, where the improvement in volatility diminishes as freedom increases.
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