The relationship between economic growth and real uncertainty in the G3

We use a long series of annual output data that span about one and a half centuries to examine the relationship between output growth and output growth uncertainty in the G3. Our econometric methodology employs GARCH models and proxies output uncertainty by the conditional variance of shocks to output growth. We find that first, more uncertainty about output growth leads to a higher rate of output growth in two of the three countries and second, output growth reduces its uncertainty in two of the three countries. Our results are robust to the choice of the distribution of the error term and the form in which the time varying variance enters the specification of the mean.