Identification of Macroeconomic Factors in Large Panels

Bork, Lasse; Dewachter, Hans; Houssa, Romain

doi:10.2139/ssrn.1509877

Cited by 13 publications

(18 citation statements)

References 26 publications

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“…In general, it is easy to impose parameter restrictions on both the measure equation and the state transition equation, which is illustrated plentifully in Bork et al (2008) where explicit interpretation of the factors is achieved through identi…cation.…”

Section: Resultsmentioning

confidence: 99%

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Estimating US Monetary Policy Shocks Using a Factor-Augmented Vector Autoregression: An EM Algorithm Approach

Bork

2009

SSRN Journal

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Economy-wide e¤ects of shocks to the US federal funds rate are estimated in a state space model with 120 US macroeconomic and …nancial time series driven by the dynamics of the federal funds rate and a few dynamic factors. This state space system is denoted a factor-augmented VAR (FAVAR) by Bernanke et al. (2005). I estimate the FAVAR by the fully parametric one-step EM algorithm as an alternative to the two-step principal component method and the one-step Bayesian method in Bernanke et al. (2005). The EM algorithm which is an iterative maximum likelihood method estimates all the parameters and the dynamic factors simultaneously and allows for classical inference. I demonstrate empirically that the same impulse responses but better …t emerge robustly from a low order FAVAR with eight correlated factors compared to a high order FAVAR with fewer correlated factors, for instance four factors. This empirical result accords with one of the theoretical results from Bai & Ng (2007) in which it is shown that the information in complicated factor dynamics may be substituted by panel information.JEL classi…cations: E3, E43, E51, E52, C33.

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Section: Resultsmentioning

confidence: 99%

“…Shumway & Sto¤er (1982) and Wu et al (1996) present the restricted 15 and Bork et al (2008) show how the restricted estimator subject to a linear restriction in the form H vec = can be derived:…”

Section: Parameter Restrictions In the Em Algorithmmentioning

confidence: 99%

Estimating US Monetary Policy Shocks Using a Factor-Augmented Vector Autoregression: An EM Algorithm Approach

Bork

2009

SSRN Journal

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“…This feature is especially appealing in the case of Canada, as it makes possible the addition of a factor that solely loads on the monthly and quarterly GDP series. Bork (2009) and Bork et al (2009) show how to impose restrictions in the model described above. We assume that there are two factors that relate to quarterly GDP, monthly GDP and the remaining macroeconomic and financial indicators, as follows:…”

Section: Estimationmentioning

confidence: 99%

A dynamic factor model for nowcasting Canadian GDP growth

Chernis¹,

Sekkel²

2017

Empir Econ

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“…Bork (2009) and Bork, Dewachter, and Houssa (2009) show how to modify the maximization step of EM algorithm described Watson and Engle (1983) in order to impose restrictions of the form H Λ vec(Λ) = κ Λ for the model described in equations (1) to (3). Bańbura and Modugno (2014) show how those restrictions can be imposed in the presence of an arbitrary pattern of missing data.…”

Section: Restrictions On the Parametersmentioning

confidence: 99%

A Global Trade Model for the Euro Area

D’Agostino¹,

Modugno²,

Osbat³

2015

FEDS

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We propose a model for analyzing euro area trade based on the interaction between macroeconomic and trade variables. First, we show that macroeconomic variables are necessary to generate accurate short-term trade forecasts; this result can be explained by the high correlation between trade and macroeconomic variables, with the latter being released in a more timely manner. Second, the model tracks well the dynamics of trade variables conditional on the path of macroeconomic variables during the great recession; this result makes our model a reliable tool for scenario analysis. Third, we quantify the contribution of the most important euro area trading partners (regions) to the aggregate extra euro area developments: we evaluate the impact of an increase of the external demand from a specific region on the extra euro area trade.

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Identification of Macroeconomic Factors in Large Panels

Cited by 13 publications

References 26 publications

Estimating US Monetary Policy Shocks Using a Factor-Augmented Vector Autoregression: An EM Algorithm Approach

Estimating US Monetary Policy Shocks Using a Factor-Augmented Vector Autoregression: An EM Algorithm Approach

A dynamic factor model for nowcasting Canadian GDP growth

A Global Trade Model for the Euro Area

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