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Tracking down the business cycle: A dynamic factor model for Germany 1820-1913

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  • Sarferaz, Samad
  • Uebele, Martin

Abstract

We use a Bayesian dynamic factor model in order to calculate an economic activity index for Germany prior to World War I. The procedure allows us to incorporate information from a vast number of time series, which are underutilized by historical national accounts. Therefore, our indicator provides an alternative measure for economic activity, based on a broader database. To investigate industrialization, we compare our aggregate measure of economic activity with sectoral activity indices. We find that the industrial transition was completed earlier than agricultural output and employment shares suggest, since the indicator for agriculture had already decoupled from the aggregate business cycle measure during the 1860s. Moreover, we find that stock prices are strongly correlated with our indicator, and lead it by 1-2 years.

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Bibliographic Info

Article provided by Elsevier in its journal Explorations in Economic History.

Volume (Year): 46 (2009)
Issue (Month): 3 (July)
Pages: 368-387

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Handle: RePEc:eee:exehis:v:46:y:2009:i:3:p:368-387

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Web page: http://www.elsevier.com/locate/inca/622830

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Keywords: Business cycle chronology Imperial Germany Dynamic factor models Industrialization;

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References

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  1. Albrecht Ritschl & Martin Uebele, 2005. "Stock Markets and Business Cycle Comovement in Germany before World War I: Evidence from Spectral Analysis," SFB 649 Discussion Papers SFB649DP2005-056, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band Pass Filter," NBER Working Papers 7257, National Bureau of Economic Research, Inc.
    • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  3. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
  4. A'Hearn, Brian & Woitek, Ulrich, 2001. "More international evidence on the historical properties of business cycles," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 321-346, April.
  5. Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
  6. Chib, Siddhartha, 1993. "Bayes regression with autoregressive errors : A Gibbs sampling approach," Journal of Econometrics, Elsevier, vol. 58(3), pages 275-294, August.
  7. Calomiris, Charles W. & Schweikart, Larry, 1991. "The Panic of 1857: Origins, Transmission, and Containment," The Journal of Economic History, Cambridge University Press, vol. 51(04), pages 807-834, December.
  8. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
  9. Otrok, C. & Whiteman, C.H., 1996. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," Working Papers 96-14, University of Iowa, Department of Economics.
  10. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  11. Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers 55, Federal Reserve Bank of Minneapolis.
  12. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388.
  13. Berger, Helge & Spoerer, Mark, 2001. "Economic Crises And The European Revolutions Of 1848," The Journal of Economic History, Cambridge University Press, vol. 61(02), pages 293-326, June.
  14. Ulrich Woitek, 1998. "A Note on the Baxter-King Filter," Working Papers 9813, Business School - Economics, University of Glasgow.
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Citations

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Cited by:
  1. Ulrich Pfister & Jana Riedel & Martin Uebele, 2012. "Real Wages and the Origins of Modern Economic Growth in Germany, 16th to 19th Centuries," Working Papers 0017, European Historical Economics Society (EHES).
  2. Uebele, Martin & Ritschl, Albrecht, 2009. "Stock markets and business cycle comovement in Germany before World War I: Evidence from spectral analysis," Journal of Macroeconomics, Elsevier, vol. 31(1), pages 35-57, March.
  3. Henning, Martin & Enflo, Kerstin & Andersson, Fredrik NG, . "Trends and cycles in regional economic growth : how spatial differences formed the Swedish growth experience 1860-2009," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/9517, Universidad Carlos III de Madrid.
  4. Ritschl, Albrecht & Sarferaz, Samad & Uebele, Martin, 2008. "The U.S. Business Cycle, 1867-1995: A Dynamic Factor Approach," CEPR Discussion Papers 7069, C.E.P.R. Discussion Papers.

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