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Identification of Macroeconomic Factors in Large Panels

CREATES Research Paper No. 2009-43

45 Pages Posted: 1 Oct 2009  

Lasse Bork

Aalborg University - Department of Business and Management

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics; Erasmus Research Institute of Management (ERIM)

Romain Houssa

CRED & CEREFIM, University of Namur

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Date Written: September 30, 2009

Abstract

This paper presents a dynamic factor model in which the extracted factors and shocks are given a clear economic interpretation. The economic interpretation of the factors is obtained by means of a set of over-identifying loading restrictions, while the structural shocks are estimated following standard practices in the SVAR literature. Estimators based on the EM algorithm are developed. We apply this framework to a large panel of US monthly macroeconomic series. In particular, we identify nine macroeconomic factors and discuss the economic impact of monetary policy stocks. The results are theoretically plausible and in line with other findings in the literature.

Keywords: Monetary policy, Business Cycles, Factor Models, EM Algorithm

JEL Classification: E3, E43, C51, E52, C33

Suggested Citation

Bork, Lasse and Dewachter, Hans and Houssa, Romain, Identification of Macroeconomic Factors in Large Panels (September 30, 2009). CREATES Research Paper No. 2009-43. Available at SSRN: https://ssrn.com/abstract=1480629 or http://dx.doi.org/10.2139/ssrn.1480629

Lasse Bork (Contact Author)

Aalborg University - Department of Business and Management ( email )

Aalborg, DK-9220
Denmark
+45 9940 2707 (Phone)

HOME PAGE: http://personprofil.aau.dk/profil/123645?lang=en

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics ( email )

Center for Economic Studies
Naamsestraat 69
Leuven, B-3000
Belgium
+0032 16 326859 (Phone)
+0032 16 326796 (Fax)

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Romain Houssa

CRED & CEREFIM, University of Namur ( email )

8 Rempart de la Vierge
Namur, 5000
Belgium

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