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Comovements and heterogeneity in the euro area analyzed in a non-stationary dynamic factor model

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  • Sandra Eickmeier

    (Deutsche Bundesbank, Frankfurt am Main, and University of Cologne, Germany)

Abstract

This paper establishes stylized facts on comovements and heterogeneity of individual euro area countries' output and price developments in the past two decades. For this purpose, a non-stationary structural dynamic factor model is fitted to a large dataset of euro area macroeconomic variables. The main results are as follows. Both common factors and idiosyncratic components are important in explaining individual countries' output and price developments in the euro area and are also both very persistent. Idiosyncratic shocks and adjustments to these shocks are mainly responsible for cross-country heterogeneity. The asymmetric transmission of common shocks plays a minor role. Finally, there is no strong evidence that some common shocks lead to greater heterogeneity than others. Copyright © 2009 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 24 (2009)
Issue (Month): 6 ()
Pages: 933-959

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Handle: RePEc:jae:japmet:v:24:y:2009:i:6:p:933-959

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Citations

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Cited by:
  1. Matteo Luciani & Antoniomaria Conti & Matteo Barigozzi, 2013. "Do Euro Area Countries Respond Asymmetrically to the Common Monetary Policy?," ULB Institutional Repository 2013/153330, ULB -- Universite Libre de Bruxelles.
  2. Nagayasu, Jun, 2013. "Co-movements in Real Effective Exchange Rates: Evidence from the Dynamic Hierarchical Factor Model," SIRE Discussion Papers 2013-66, Scottish Institute for Research in Economics (SIRE).
  3. Sandra Eickmeier, 2010. "Analyse der Uebertragung US-amerikanischer Schocks auf Deutschland auf Basis eines FAVAR," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 230(5), pages 571-600, October.
  4. Huh, Hyeon-seung & Kim, David & Kim, Won Joong & Park, Cyn-Young, 2013. "A Factor-Augmented Vector Autoregression Analysis of Business Cycle Synchronization in East Asia and Implications for a Regional Currency Union," ADB Economics Working Paper Series 385, Asian Development Bank.
  5. Eickmeier, Sandra & Ng, Tim, 2011. "Forecasting national activity using lots of international predictors: An application to New Zealand," International Journal of Forecasting, Elsevier, vol. 27(2), pages 496-511, April.
  6. Matteo Barigozzi & Antonio M. Conti & Matteo Luciani, 2013. "Do euro area countries respond asymmetrically to the common monetary policy?," Temi di discussione (Economic working papers) 923, Bank of Italy, Economic Research and International Relations Area.
  7. M. Hashem Pesaran & L. Vanessa Smith & Takashi Yamagata, 2008. "Panel Unit Root Tests in the Presence of a Multifactor Error Structure," Discussion Papers 08/03, Department of Economics, University of York.
  8. Pilar Poncela & Esther Ruiz, 2012. "More is not always better : back to the Kalman filter in dynamic factor models," Statistics and Econometrics Working Papers ws122317, Universidad Carlos III, Departamento de Estadística y Econometría.
  9. Schumacher, Christian, 2009. "Factor forecasting using international targeted predictors: the case of German GDP," Discussion Paper Series 1: Economic Studies 2009,10, Deutsche Bundesbank, Research Centre.
  10. Hyeon-seung Huh & David Kim & Won Joong Kim & Cyn-Young Park, 2013. "A Factor-augmented VAR Analysis of Business Cycle Synchronization in East Asia and Implications for a Regional Currency Union," Working papers 2013rwp-58, Yonsei University, Yonsei Economics Research Institute.

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