Have output growth rates stabilised? evidence from the g‐7 economies

In this paper we consider an extension of Hamilton's Markov chain model of output growth that allows for a one‐time structural break in the hyperparameters. We fit this model to post‐war quarterly output growth data from the G‐7 economies and find evidence for such a structural break in each of them, although the break occurs at different times. The break is always associated with a decline in volatility and often with a narrowing of the mean growth differential between the expansionary and recessionary regimes. The results show that stabilisation has typically been achieved at the expense of a reduction in growth rates.