Is Industrial Production Still the Dominant Factor for the US Economy?

87 Pages Posted: 15 Aug 2017

See all articles by Elena Andreou

Elena Andreou

University of Cyprus - Department of Economics

Patrick Gagliardini

USI Università della Svizzera italiana; Swiss Finance Institute

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Mirco Rubin

University of Bristol

Multiple version iconThere are 2 versions of this paper

Date Written: August 2017

Abstract

We propose a new class of large approximate factor models which enable us to study the full spectrum of quarterly Industrial Production (IP) sector data combined with annual non-IP sectors of the economy. We derive the large sample properties of the estimators and test statistics for the new class of unobservable factor models involving mixed frequency data and common as well as frequency-specific factors. Despite the growth of service sectors, we find that a single common factor explaining 90% of the variability in IP output growth index also explains 60% of total GDP output growth fluctuations. A single low frequency factor unrelated to manufacturing explains 14% of GDP growth. The picture with a structural factor model featuring technological innovations is quite different. Last but not least, our identification and inference methodology rely on novel results on group factor models that are of general interest beyond the mixed frequency framework and the application of the paper.

Keywords: GDP growth, Group Factor models, MIDAS

JEL Classification: C32, C33, C38, E32

Suggested Citation

Andreou, Elena and Gagliardini, Patrick and Ghysels, Eric and Rubin, Mirco, Is Industrial Production Still the Dominant Factor for the US Economy? (August 2017). CEPR Discussion Paper No. DP12219. Available at SSRN: https://ssrn.com/abstract=3018473

Elena Andreou (Contact Author)

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus
+357 2 892449 (Phone)
+357 2 892432 (Fax)

Patrick Gagliardini

USI Università della Svizzera italiana ( email )

Via Buffi 13
Lugano, TN 6900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Eric Ghysels

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall, CB 3305
Chapel Hill, NC 27599
United States
919-966-5325 (Phone)
919-966-4986 (Fax)

HOME PAGE: http://www.unc.edu/~eghysels/

Mirco Rubin

University of Bristol ( email )

School of Economics, Finance and Management
Priory Road Complex, Priory Road
Bristol, BS8 1TU
United Kingdom
+44 (0) 117 3940488 (Phone)

HOME PAGE: http://https://sites.google.com/site/mircorubin/

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