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Identification of Macroeconomic Factors in Large Panels

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Author Info
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)

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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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Publisher 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
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Handle: RePEc:aah:create:2009-43

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

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Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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. [Downloadable!]
  2. Lasse Bork, 2009. "Estimating US Monetary Policy Shocks Using a Factor-Augmented Vector Autoregression: An EM Algorithm Approach," CREATES Research Papers 2009-11, School of Economics and Management, University of Aarhus. [Downloadable!]
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This page was last updated on 2009-11-27.

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