It is well known that the variance of GDP growth has fallen in many OECD countries
in the last two decades (see, among many, Mills and Wang [2000], van Dijk, Osborn,
and Sensier [2002], and Stock and Watson [2003])). This is also evidenced in column 5
of Table 18, which shows the decline in the four-quarter-ahead forecast variance of GDP
between S1 and S2 in all countries except Canada. Columns 1 to 4 of Table 18 show that
the standard deviation of government spending shocks (eg
t in equation (2)) has also fallen