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Identification of Macroeconomic Factors in Large Panels

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  • Lasse Bork

    ()
    (Finance Research Group, Aarhus School of Business, University of Aarhus and CREATES)

  • Hans Dewachter

    (CES, University of Leuven, RSM Rotterdam and CESIFO.)

  • Romain Houssa

    ()
    (CRED and CEREFIM, University of Namur, CES, University of Leuven)

Abstract

This paper presents a dynamic factor model in which the extracted factors and shocks are given a clear economic interpretation. The eco- nomic 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 developped. 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 pol- icy stocks. The results are theoretically plausible and in line with other findings in the literature.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2009-43.

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Length: 43
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:aah:create:2009-43

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Web page: http://www.econ.au.dk/afn/

Related research

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

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Cited by:
  1. Bork, Lasse, 2009. "Estimating US Monetary Policy Shocks Using a Factor-Augmented Vector Autoregression: An EM Algorithm Approach," Finance Research Group Working Papers F-2009-03, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  2. Valeri Voev, 2009. "On the Economic Evaluation of Volatility Forecasts," CREATES Research Papers 2009-56, School of Economics and Management, University of Aarhus.

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