Under the
circumstances of the most recent and still undergoing severe economic recession
in Greece, the question arises on the role of uncertainty as regards the
country’s growth prospects. In order to assess the potential impact of real
uncertainty on economic growth, this paper investigates the bidirectional link
between output growth and real uncertainty for the case of Greece. We use quarterly
GDP data covering the time period from 1975 to mid-2013, and so include the
most recent period of still undergoing recession. We apply an extended GARCH-M
model to be able to directly and simultaneously examine both directions of
dependence between output growth and real uncertainty. We find that a negative
and significant relation exists in both ways, hence providing a tool for
policies in order to speed up economic recovery.
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