The Deep Historical Roots of Macroeconomic Volatility

We present cross‐country evidence that a country's macroeconomic volatility, measured either by the standard deviation of output growth or the occurrence of trend‐growth breaks, is significantly affected by the country's historical variables. In particular, countries with longer histories of state‐level political institutions experience less macroeconomic volatility in post‐war periods. Robustness checks reveal that the effect of this historical variable on volatility remains significant and substantial after controlling for a host of structural variables investigated in previous studies. We also find that the state history variable is more important in countries with a higher level of macroeconomic volatility.